Yesterday, gold won an influential supporter in the White House. Who is he?

The Enemy of Gold’s Enemy Is Gold’s Friend

As the ancient proverb goes, my enemy’s enemy is my friend. Although it is usually employed in foreign policy, this concept also applies to finance. Given the negative correlation between the greenback and gold, the enemies of the U.S. dollar are generally gold’s friends.

U.S. Treasury Secretary Steven Mnuchin has recently joined this elite club. On Wednesday, he welcomed the weakness in the American currency. According to Bloomberg, Mnuchin told reporters at the annual Davos summit of business and political leaders that a weaker dollar is not bad for the U.S., at least in the short term: “Obviously a weaker dollar is good for us as it relates to trade and opportunities”. He also added that the currency’s short-term value is “not a concern of ours at all.”

Is Mnuchin a Gold Bulls’ Secret Agent?

Surely, it’s not the case that Mnuchin wants the collapse in the U.S. dollar. He is the Treasury Secretary, after all. Indeed, he also winked yesterday at the dollar’s fans:

Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency.

Everyone was pleased. Almost. As the chart below shows, the U.S. dollar has plunged against the euro. Actually, the greenback sank to the level not seen since late 2014.

Chart 1: EUR/USD exchange rate over the last three days.

The reason behind the decline was the fact that Mnuchin’s remarks were unexpected. His comments departed from the strong rhetoric on the U.S. dollar of Treasury Secretaries before him but were actually perfectly in line with Trump’s views that a weak greenback is positive for American exporters. As a reminder, the President said last year that the dollar was “too strong”, sending it south. So Mnuchin’s comments shouldn’t be surprising. But they were to many analysts.