The Dollar, Gold, X-Mas and Happy New Year

Barring something unforeseen that can’t wait until January 4th to comment on, this will be my last market commentary of 2009.

Despite knowing year-end market conditions can and will cause markets to move more than normal, I’m going to remove my hold on gold and silver bullion (updated model portfolio) and suggest it’s okay to start easing one’s self back into the water again. While I still believe significant physical bullion buying is not likely to return until we’re closer to the area where India stepped up and bought some IMF gold (about $30 lower from here), the surprises for the most part in gold for almost eight years has been to the upside.

Knowing the “masses” are currently fixated on the U.S. Dollar at the moment (and the gold perma-bears, who have been spanked around and left for dead from $400 and up are all on their knees praying to the dollar gods to somehow drive gold hundreds of dollars lower so their one wrong forecast after another can finally be like a broken clock and be right for once), this bear market rally in the dollar should at least get to the 200-day M.A. around 79.50 in this move. While the dollar is now very overbought near-term, the fact that this rebound comes out of a classic falling bullish wedge suggests the dollar can still go higher longer term. The 83-84 area is fair game.

The long-term fundamental outlook for the U.S. Dollar remains the same – terminal.

The “Don’t Worry, Be Happy” crowd have convinced many that Uncle Sam has gone from this:

to this:

but make no mistake about it. The eye of the storm is just a respite from the economic, political and social upheaval that is well underway in America. We remain in a secular dollar bear market and this counter-trend rally comes with the territory. It would be a gift if it could rally back towards 90, but such a feat is as likely as the Jets and Mets winning the Super Bowl and World Series in the same year.

What should surprise the masses is how gold rebounds in the face of a so-called “stronger dollar,” which I believe can drive gold up to new highs in the first quarter as technicians see major bullish trends in gold in most other currencies.