US Dollar - Testing the Previous Low and Implications for Gold

July 26, 2009 · Posted in Weekly Posts · Comment

This US dollar continued lower last week in the face of equity market strength but its decline was a measured erosion rather than any abrupt move. As we see from the chart below the dollar index is now just about at the previous low set in June before the recent rebound. We are at a cross roads then where the dollar could either affirm the previous low potentially setting the stage for a rally or break through setting it up for more downside risk. The most recent few days of dollar movement have been generally sideways while equity markets and commodities have continued to rise. Clearly, the dollar trajectory and the recent equity and commodity strength are tied together. We are left then to wait and see which of these scenarios play out over the near term as both are consistent with long term dollar weakness and the technicals do not support a decision one way or another. keep in mind too that there are large players in the market who are likely short the US dollar so any rebound off of these levels could lead to a larger move as shorts cover.

Going into a new week then it is imperative that investors keep an eye on the US dollar index action as it may well presage the direction of other markets.

US Dollar Index 07/24/2009

Now, what about gold?

Gold, like the US dollar has moved sideways the last few weeks though it has shown a little volatility in the process. Note on the chart though that the 50 day moving average line is moving up close to the current price. Often when prices start flat-lining or moving within a very small range and their moving average lines rise to close to the current price there is a good chance that the next move is a strong move up. This is not evident on the US dollar chart but is evident on gold.

Pay attention to gold this week. If, as we suspect the symmetrical triangle break out to the upside then gold should easily exceed its previous highs. We have discussed possible targeted moves in past posts.

Members will find our trading plans in our Strategic Portfolio Scorecard updates as they appear.

Gold 07/24/2009

We can expect then that if gold resolves itself to the upside then the dollar will likely move lower and other commodity prices will move higher.

For those who are following the looming dollar crisis we urge you to read our free post Watch Out For Sterling where we raise the case that a precipitous fall in Sterling could serve to elevate the dollar near term and trash trading positions betting on an imminent dollar collapse.

Readers should take a look at our post The Most Important Question Facing Investors to understand the risks we are currently facing.

We wrote recently in “The Character of the Dollar Collapse” on the risks to investors in any asset of a dollar collapse.

Murdock Global Insight began discussing the dollar’s impending demise in January when the dollar was still generally strengthening How the US Dollar Will Lose Reserve Status. Now, in June, the idea that the dollar is destined for significantly lower levels at some point has entered the mainstream. The US fiscal position is increasingly being seen as untenable. Interest rates are surging for a variety of reasons but he massive debt issuance by the US is one primary cause. We have established the Murdock Strategic Portfolio for the purpose of growing our wealth in the face of a dollar collapse/surging China scenario The Strategic Portfolioand we have written about the risks that a free fall in the dollar could cause to those investments The Most Important Question Facing Investors.

To find out the details look at our strategic portfolio scorecard. The Strategic Portfolio is how we are investing in the global trend of dollar depreciation and Asian recovery and trading around that trend to ensure we stay profitable. Take advantage of the Free Two Week Trial and read it. We have also update the scorecard for today’s action.

The Strategic Portfolio

Portfolio Scorecard 07/20/2009

In addition, we strongly recommend reading The Most Important Question Facing Investors as recent action illustrates directly what we are faced with if the dollar decline turns into a free-fall.

To view previous Members Only posts simply follow the instructions under the “Become a Member” tab and select the “One Month Free Membership” when you get to the Products page. You must complete the checkout process in order for the Membership to complete. Registration is not sufficient. You are under no obligation to continue beyond the One Month Free Trial and your e-mail and address will not be shared with third parties.

The following additional posts are highly relevant:

The Strategic Portfolio

The Most Important Question Facing Investors

On the Edge of the Empire, Dollar Influence is Declining

The Dollar and Gold Near Term

How the US Dollar Will Lose Reserve Status

Chinese Gold British Debt

China: Part 2 - Bonds, Dollars, and Inflation”.

“The Fed and The Bond Market - Will Intervention be Effective?”

“The Coming Bond Debacle”

Fundamental Trends