Wednesday, December 29, 2010

When DXY 80 Breaks, Have No Place to Stay

The dollar has traded at DXY 80 forever.  The upside came and so did downside.  Over the last few decades, DXY 80 has been the norm.  What that meant for gold, equities, inflation, and other metrics of measurement is what stories are made of, but the crumbling of the dollar will be the end of it.

I can not say enough that Bernanke wants a weak dollar.  All economists do.  It will 'spur trade', and more than anything, it will alleviate the debt.  If bond prices stay high, like the Fed wants, then interest stays low.  This low interest rate is needed to keep the ponzi churning.  The weak dollar is the backbone.

Today Treasuries strengthened and the dollar weakened, what does that tell you?  That tells me the wheels are falling off, and Bernanke is driving off a cliff.  If the dollar makes a significant break below 80 then we will be in a brave new financial world.

Tomorrow I think the dollar will stay pinned at DXY 80.  I think gold and silver will sell off.  Then, on the following trading days, I think there will be either a big move down or up for the dollar.  If news comes out of Europe like, 'Spain Will Default' I think the Euro could get wrecked.  Then the dollar could move to the top of its recent range, at DXY 81.5.  This would have gold testing higher than $1500.  The other scenario is that the US reports bad news and the DXY lowers, to 79 abouts.  Then gold would see a similar move up but probably only to$1440.

Gold trades better on a strong dollar.  It is part of the risk off trade now.  It is also risk off as no one, and I repeat no one owns gold.  The matter is that it is a small market, that is why ist is risky.  I know, I can hardly believe it.

No comments:

Post a Comment