Wednesday, March 3, 2010

Interesting Short Term U.S. Dollar Juncture

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While everyone is panicking about the Greek economy and the imminent collapse of the Euro, which is a scenario I find ridiculous in the short term, the U.S. Dollar made a significant turn today in my opinion. What happens next will be something to watch for Gold investors. The U.S. Dollar Index is an abstract concept that has little to do with the true value of paper debt tickets (i.e. currency units) in an anchorless international paper monetary system. The Dollar Index is also irrelevant to the price of Gold over the longer term, but can have a significant effect on short-term movements.

Here's a 6 month U.S. Dollar Index ($USD) chart thru today's close with my thoughts:

What happens after we test the 50 day moving average range is the key. We should get a bounce there good for at least a few days, but the question is whether we will start a new downtrend after that or continue the up trend currently in place. I don't know the answer, but the overwhelming majority of non-commercial market participants who are actually betting money on the outcome via direct trades in the currency markets are betting on the U.S. Dollar to go higher over the intermediate term. Me, I'm not so sure. I have a feeling that the U.S. Dollar will surprise to the downside and spark a major rise in the Gold price. Such a scenario may or may not keep the general stock market afloat for several weeks in a drawn out topping process.

What could trigger such a turn in the U.S. Dollar? Anything, really. How about another California crisis (an individual state that is roughly the 8th or 9th largest economy in the world...)? How about a few hedgies sneezing? The FOREX game is a dangerous one right now. Rolling currency crises will be a big part of the news for the next year or two as the current international monetary system implodes. The various sovereign and regional currencies of the world will continue to go thru heart-stopping trampoline jumps, all the while sinking together as the current secular credit contraction grinds on. Gold will keep your savings safe during this time of turbulence and lost confidence by rising above the fray and assuming its primary function - that of real, debt-free money.

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