The US dollar this
week closed at a new 7-year low when measured by the US Dollar Index, Swiss
franc, and goldgram. But it was a record low against the euro.
New lows in the
dollar appear to be in the cards. The following chart shows that the US
Dollar Index remains in the same sharp downtrend channel that has now marked
its decline for two years.
Even the Bush
administration appears ready for new lows in the dollar. The sound-bite
"strong dollar policy" isn't even mentioned anymore. Instead, the
word from D.C. is that the dollar's decline has been "orderly", which
would be funny if it weren't so tragic. Since it's January 2002 peak, the US
Dollar Index has lost 27% of its value.
But because this
index represents the dollar's drop against a basket of currencies, it in
effect portrays the dollar's average performance. So against some currencies,
the dollar is doing even worse. For example, over this same period the dollar
has dropped by more than 30% against the euro and nearly 44% against the
goldgram, which gets to the point of this alert.
There is a misleading
and potentially dangerous conventional 'wisdom' emerging that gold is not
rising against the euro and other currencies. In fact, gold is rising against
all the world's major currencies, but the rate of ascent against some of them
is so relatively small compared to what gold is doing in dollar terms that
its rise may at first seem imperceptible. For example, in contrast to its big
gain against the US dollar, the goldgram since January 2002 has risen only 5%
against the Swiss franc.
There is an important
message here, which is portrayed by the following chart. Namely, the best is yet to come.
Even though the
goldgram rate of ascent against the Swiss franc has been slow, a breakout
from this chart pattern is imminent. I expected the breakout to occur by now,
but it hasn't. The reason is that people fleeing the dollar for now are still
moving most of their purchasing power into the euro, Swiss franc and other
currencies. The flow out of the dollar into gold has been somewhat muted, at
least so far, which probably explains the relatively low level of bullish
sentiment seen in recent weeks even as the goldgram rises against the dollar.
But even though I have been too early in my timing for the goldgram breakout
against the Swiss franc, the big picture remains unchanged, and here is where
the above chart is particularly useful.
Once gold exceeds Sfr
528.75 per ounce (Sfr 17.00 per goldgram), gold will have broken out of its
base. And just like gold rocketed upward when it broke out of its base in
dollar terms by moving above $325, expect a replay against the Swiss franc. And
the euro, yen and other currencies too. Importantly, I continue to anticipate
that this important breakout can occur at any moment.
exchange rate against 20 of the world's major currencies - including the
Swiss franc - is available here:
Turk is the founder of GoldMoney
(www.goldmoney.com) and the co-author of The Coming Collapse of the Dollar (www.dollarcollapse.com).
© 2007 by James Turk. All rights reserved.
Copyright © 2008. All rights reserved.
Edited by James Turk, firstname.lastname@example.org
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