Still Waiting for the Key Breakout by James Turk

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.

The goldgram's exchange rate against 20 of the world's major currencies - including the Swiss franc - is available here:
http://goldmoney.com../metal-rates.php

James Turk

Goldmoney.com

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

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