Fresh from the Trading Room: Resource curse

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Natural gas prices surged on a strong breakout as extreme cold in some parts of the U.S. drove up heating demand.

The Mexican peso is on the verge of breaking out from a four-month rounding bottom, signaling a potential reversal.

Following gold’s lead, silver has cleared major overhead resistance at around 33, confirming a breakout.

The gold/silver ratio is approaching a long-term resistance, indicating silver’s underperformance against gold may be nearing a reversal.

After weeks of consolidation, soybean oil prices are set to break out from an ascending triangle, resuming the uptrend.

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In our end-January piece, we revisited a compelling perspective from Treasury Secretary Scott Bessent, drawn from his time as a hedge fund manager. Bessent was a strong advocate for a weaker U.S. dollar, arguing that it would boost U.S. manufacturing competitiveness and, in turn, drive economic growth. Today, we turn our attention to another thought-provoking view from the past—this time from Vice President JD Vance, another key figure in the new Trump administration.

In 2023, during a Senate Banking Committee hearing, Vance pressed Fed Chair Jerome Powell on the implications of the U.S. dollar’s role as the world’s reserve currency. He introduced an intriguing concept: the “resource curse,” also known as the paradox of plenty. Vance used his hometown of Appalachia in Southeastern Kentucky as an example—a region rich in coal yet plagued by low productivity growth and economic stagnation due to malinvestment. He then drew a striking parallel between this phenomenon and the U.S. dollar’s global reserve status. While this status has undoubtedly conferred significant benefits to the U.S., Vance argued that it has also imposed substantial costs. In his view, it acts as a massive subsidy for American consumers but an equally massive tax on American producers, hollowing out the country’s industrial base over time.

This perspective closely aligns with Bessent’s, and it’s worth emphasizing that both articulated these views well before joining the Trump administration. We continue to find ourselves revisiting the central role of the U.S. dollar in global macroeconomics. As the saying goes, in global macro investing, if you get the U.S. dollar right, you get a lot of other things right.

So, what does a weaker U.S. dollar imply? Among other things, higher commodity prices, stronger commodity-linked currencies, such as the Australian dollar, Canadian dollar and Mexican peso, and a potential rotation of capital from the U.S. into emerging markets. The one place we’ll be steering clear of? The U.S. equity market, as we see far more attractive opportunities (risk-adjusted of course) elsewhere.

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We conclude with the following hypothetical trades:¹:

Case Study 1: Long MXN/USD futures

We would consider taking a long position in the MXN/USD futures (6MH5) at the current price of 0.04918, with a stop-loss below 0.04770, a hypothetical maximum loss of 0.04918 – 0.04770 = 0.00148 points. Looking at Figure 2, if the rounding bottom breakout is confirmed, MXN/USD has the potential to rise to 0.05400, resulting in 0.05400 – 0.04770 = 0.00630 points. Each MXN/USD futures contract represents 500,000 Mexican pesos, and each point move is 500,000 USD.

Case Study 2: Long Silver futures

We would consider taking a long position in Silver futures (SIH5) at the current price of 33.3, with a stop-loss below 31.5, a hypothetical maximum loss of 33.3 – 31.5 = 1.8 points. Looking at Figure 3, if the breakout of the overhead resistance is confirmed, silver prices have the potential to reach 36.0, resulting in 36.0 – 33.3 = 2.7 points. Each Silver futures contract represents 5,000 troy ounces of silver, and each point move is 5,000 USD. Micro Silver futures contracts are also available at 1/5 of the standard size.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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