Dollar Breakdown to Ignite Gold Market
Jason Hamlin submits: MarketWatch.com just published an article entitled "Dollar on Path for a Crisis". We couldn’t agree more. The timing of this crisis should coincide nicely with wave III of the current bull market and may very well be the fuel to ignite gold’s next big run.
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The dollar is moving toward a crossroads. The U.S. Dollar Index, which tracks the buck against a handful of the world’s major currencies, has been consolidating along an uptrend line that began in December 2004, but also along a downtrend that started in November 2005. Given that the trendlines are on path to intersect, the dollar will be breaking out soon. Technically speaking, it looks very likely that the direction will be to the downside.
With China and other countries freely talking of plans to diversify their foreign exchange reserves, which have been predominantly comprised of U.S. dollars, the FX hordes now have a fundamental excuse to push for a breakdown.
After the turn of the millennium, the White House told us a strong dollar was in our best interest, but it was pretty obvious that they didn’t really mean it. The dollar index, which tracks the U.S currrency against a basket of its major trading partners, lost a third of its value from the February 2002 high (120.51) to the December 2004 low (80.39), but the government did nothing to fight it.
The Street.Com reports that "gold is still glittering" and the shine is about to get much brighter.
Traditionally, the demise of the dollar is what sends investors scurrying for an asset class that will retain its value even in the face of rampant inflation. During the late 1970s and early 1980s, for example, rising oil prices sparked double-digit inflation in the U.S. The result was a flight to gold that ultimately pushed the price to a record high of $875 an ounce in January 1980...
The greenback rebounded in 2005, yet has resumed its downward slide so far in 2006 as the government continues to borrow — and print — money to pay for things like Hurricane Katrina relief and the Iraq war. Gold has not exactly traced the path of the dollar this year because widespread speculation has created a more volatile environment, but the links between the dollar, inflation and the shiny metal still apply.
AI
