GoldMoney Alert - 1 June 2008

Waiting for the Dollar's Next New Low

For the past six years the US dollar has been on a downward path. It has made one new low after another, interrupted only by the occasional rally.

Last September, the US Dollar Index, which compares the dollar's rate of exchange against other major currencies, fell to an all-time record low. After a short-lived bounce, it fell to one new record low after another for the first three months of this year. The Dollar Index then settled within a narrow trading range, which continues to confine it.

More record lows in the Dollar Index can be expected. After all, the dollar closed this month at a new record low against crude oil, and is near record lows against many commodities. In other words, the purchasing power of the dollar is being eroded by inflation, repeating the experience of the 1970s. The following chart of the CRB Continuing Commodity Index shows that the uptrend in commodity prices is well established.

The bearish case for the dollar is overwhelming. Despite all the talk about the so-called "strong dollar" policy, nothing is being done to make it happen. Instead of taking action to strengthen the dollar (for example, raising interest rates and reducing the rate of money growth), the Federal Reserve is focusing on the deteriorating economy, heavy debt load and bank fragility. It is giving low priority to preserving the purchasing power of the dollar.

So I am still looking for a crisis in the dollar by this summer, but we need a new low in the US Dollar Index to confirm that its short-term downtrend has resumed. For three months the Dollar Index has been in a trading range that extends from around 71.40 to 73.50. The Dollar Index needs to break out of this trading range to the downside and make a new record low. This new low will re-confirm the bearish outlook for the dollar, and validate the downward pointing arrow on the following chart of the US Dollar Index.

The Dollar Index ended May at 72.88, the ninth month in a row below its previous record low marked by the dotted line on the above chart.

The dollar is in a major bear market, and is losing purchasing power day after day because of debasement and inflation. Continue to avoid it. Hold gold and/or silver instead.

Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk

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