The Dollar Gets Slammed 12 comments
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While investors have been focused on the S&P 500 and its attempt to break through its 50-day moving average, the Dollar had no problems breaking through its 50-day. Unfortunately, the break was to the downside. With a decline of 1.5% today, the US Dollar index traded below its 50-day moving average for the first time since late July.
At the same time the Dollar has been falling, the Euro has been rallying, as it broke above its 50-day moving average for the first time in months. Was the negative yield on the three month T-Bill a wake up call to foreign investors that holding cash in Dollars is not a very attractive option?
click to enlarge
Not surprisingly, Gold is benefiting from the Dollar's weakness with a gain of 3% today. A look at this chart shows that the commodity is still nowhere near breaking its downtrend. However, it is currently trading right at a short-term resistance level of around $830. How it acts in the weeks and months ahead will be a good indication of how concerned the market is regarding inflation.
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Of course the dollar is down. Whether it stays down or not in the short term, the dollar has nowhere to go but down. Those are the fundamentals of U.S. debt and failure to produce anything of value.
(Excerpted from speech to China Gold Summit, December 4, 2008, Shanghai -- by Jeffrey Nichols, managing director of American Precious Metals Advisors and NicholsOnGold.com)
I remain bullish on gold because — even as the global economic recession deepens — governments will find the only way out of this mess is to print more money. In other words, to inflate.
The United States Treasury and the Federal Reserve have already thrown a few trillion dollars, more or less, into the banking system and are now also lending directly to businesses and households. And, there’s surely much more to come when the next Administration moves into Washington.
It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy – including the United Kingdom and the Euro zone, China, Russia, Japan and on and on – are doing likewise.
We have never in the history of money seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value – in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable devaluation of money and the corresponding rise in price inflation that will propel gold skyward in the next few years.
As sure as day follows night, reflationary monetary policies — however necessary — have long-term implications for global inflation. Typically, monetary creation affects price inflation with a lag of six months to a couple of years – and in the current environment, the lag could be still longer . . . so it may be some time before inflation is recognized as a serious problem. But gold prices have shorter lags and could begin moving up before rising inflation becomes apparent or worrisome.
Longer term, gold-price prospects remain as bright as ever — and I firmly believe we will see record high prices in the next few years with gold back over $1000 an ounce in the coming year.
With the right confluence of economic and geopolitical developments we should see gold break through $1500, then $2000, and possibly still higher round numbers in the next few years – particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.
This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2200.
Let me end with a warning about the days and weeks ahead. In the short term, gold remains volatile and vulnerable, if only because market psychology is nervous, anxious, and fearful. In this environment, we could still get a quick sell-off that would bring us back to the recent lows. But, day by day, I think that becomes less likely and, day by day, I think the base is building for a lasting longer-term recovery.
(Excerpted from speech to China Gold Summit, December 4, 2008, Shanghai -- by Jeffrey Nichols, managing director of American Precious Metals Advisors and NicholsOnGold.com)
I remain bullish on gold because — even as the global economic recession deepens — governments will find the only way out of this mess is to print more money. In other words, to inflate.
The United States Treasury and the Federal Reserve have already thrown a few trillion dollars, more or less, into the banking system and are now also lending directly to businesses and households. And, there’s surely much more to come when the next Administration moves into Washington.
It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy – including the United Kingdom and the Euro zone, China, Russia, Japan and on and on – are doing likewise.
We have never in the history of money seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value – in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable devaluation of money and the corresponding rise in price inflation that will propel gold skyward in the next few years.
As sure as day follows night, reflationary monetary policies — however necessary — have long-term implications for global inflation. Typically, monetary creation affects price inflation with a lag of six months to a couple of years – and in the current environment, the lag could be still longer . . . so it may be some time before inflation is recognized as a serious problem. But gold prices have shorter lags and could begin moving up before rising inflation becomes apparent or worrisome.
Longer term, gold-price prospects remain as bright as ever — and I firmly believe we will see record high prices in the next few years with gold back over $1000 an ounce in the coming year.
With the right confluence of economic and geopolitical developments we should see gold break through $1500, then $2000, and possibly still higher round numbers in the next few years – particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.
This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2200.
Let me end with a warning about the days and weeks ahead. In the short term, gold remains volatile and vulnerable, if only because market psychology is nervous, anxious, and fearful. In this environment, we could still get a quick sell-off that would bring us back to the recent lows. But, day by day, I think that becomes less likely and, day by day, I think the base is building for a lasting longer-term recovery.
I disagree. A weaker dollar is a GOOD thing right now! As we print money to perform bailouts, that is the result...and there are some good facets to inflation:
a) Dollar-denominated debts shrink when the dollar weakens; since too much debt is the core of this economic melt-down, making it easier to dispose of debt is a good thing.
b) A weak dollar is great for U.S. exports...and since foreign consumers, although also experiencing a downturn, are not as heavily debt-laden as Americans are, they are more able to purchase. If Americans can't (or won't) purchase, fomenting exports is a huge deal!!
Agreed. What is significant on the chart shown is that gold has finally put in a higher low during the correction. If the next move down doesn't breach the most recent lows around $730 then the odds of a continuation of the 5 year old bull will have improved considerably.
This may be the beginning of the end of the correction. Prepare accordingly.
1) lower US dollar
2) higher oil
3) higher gold
4) higher inflation (in the US)
5) a lower standard of living for US citizens
6) an S&P500 which will (continue) to go no-where
the only hope to break this trend is:
a) responsible fiscal policy (no-hope for that until we dig ourselves out of the current deep hole we are in, meaning massive gov spending)
b) more importantly a strategic long-term comprehensive energy policy:
thefitzman.blogspot.co...
i am just surprised the US dollar has been as strong as it has been for as long as it has been. no doubt it is worldwide investor panic, for there is no fundamental reason the US currency should be so strong other than the US has the world's dominant military force. unfortunately, unwise use of this force has only increased our haste to bankruptcy, increased terrorism aimed at us, and reduced our reputation in the world. in short, how can the US dollar not go down as such wrongheaded US policy and US dollar printing presses work overtime? obama, must as i like him, is simply inheriting a colasal mess as the result of a cat 5 moron.
That and the fact that Idiot Cox decided that Mark to Market should be retained translates into that what has occurred previously on the Money supply should be taken as a single shot VS a Salvo.
If Opec manages to cut oil production in the 4-5 mil. range, then all bets on the Dollar should be taken off the table, Gold will surge.
Remember Opecs recent purchases of Gold? Hmmm, looks like it was a sure Investment.
IMHO
We cannot dig our way out of this hole, -ever done it? Blues artist Robert Cray Said it best: "The forecast calls for pain." BTW, love the Cat 5 moron reference.
On Dec 11 02:40 PM The Fitzman wrote:
> bush economic policies have almost guaranteed the following long-term
> trends:
> 1) lower US dollar
> 2) higher oil
> 3) higher gold
> 4) higher inflation (in the US)
> 5) a lower standard of living for US citizens
> 6) an S&P500 which will (continue) to go no-where
>
> the only hope to break this trend is:
> a) responsible fiscal policy (no-hope for that until we dig ourselves
> out of the current deep hole we are in, meaning massive gov spending)
>
> b) more importantly a strategic long-term comprehensive energy policy:
>
> thefitzman.blogspot.co...
>
>
> i am just surprised the US dollar has been as strong as it has been
> for as long as it has been. no doubt it is worldwide investor panic,
> for there is no fundamental reason the US currency should be so strong
> other than the US has the world's dominant military force. unfortunately,
> unwise use of this force has only increased our haste to bankruptcy,
> increased terrorism aimed at us, and reduced our reputation in the
> world. in short, how can the US dollar not go down as such wrongheaded
> US policy and US dollar printing presses work overtime? obama, must
> as i like him, is simply inheriting a colasal mess as the result
> of a cat 5 moron.