An Update on the Dollar

Have I overstated the bearish case for the dollar in recent alerts? I don't think so. Am I still looking for a crisis in the dollar by this summer? Yes, but we need a new low in the US Dollar Index to confirm that its short-term downtrend remains intact. This new low will re-confirm the bearish outlook for the dollar.

The following chart of the Dollar Index shows just how badly the dollar has been doing.

Since reaching a peak in 2000, the Dollar Index has had only one major rally. From December 2004 to November 2005, the Dollar Index climbed 14.7%. This lone rally stands in stark contrast to the numerous double-digit jumps in the late 1980s and early 1990s, which is an important point. This difference to the earlier period signals a profound underlying weakness in the dollar.

There have of course been bounces along the way over the past eight years, but these typically are just a few percent. They recur periodically as the Dollar Index becomes oversold. We are in one of those moments.

The Dollar Index has bounced as high as 3.1% from its record low last month, but is now only 2.4% above that low. In other words, it looks like the Dollar Index has started to slip again, which is to be expected. After all, no one in Washington is doing anything to improve the prospects for the dollar. There has been a lot of talk about the so-called "strong dollar" policy, but nothing is being done to bring it about.

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, which remain in clear uptrends.

Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk, alert@goldmoney.com