The View From 1776

Dollar’s Plunge Anticipates Further Fumbling Fed Attack

Jim Turk, an expert on gold markets, notes that The US dollar is plummeting.

October 3, 2010

Posted by .(JavaScript must be enabled to view this email address) on 10/31 at 01:55 PM
  1. If you look at the chart that accompanies the Turk piece, you see that from 2000 to 2008, the dollar plunged from 120 to 75, but that from 2008 to 2010 the dollar have been basically stable or slightly elevated (although it is not clear what the ordinate units are on this curve.)

    Would it be uncharitable to describe Turk as a shill for gold stocks?
    Posted by .(JavaScript must be enabled to view this email address)  on  10/31  at  04:42 PM
  2. Mr. Jay:

    Yes, it would be. So far as I know, Jim doesn't "tout gold stocks." He puts his money where his mouth is; he and his clients own the metal.

    Saying that the dollar index today is approximately where it was in 2008, amid turbulent and uncertain market conditions, is analogous to saying that the stock of XYZ Co. is today priced where it was two years ago, ignoring the fact that the price has been dropping rapidly. Stay with that stock if you are firmly convinced that it will ultimately rebound, but you may lose your shirt.

    As recently as the beginning of June the dollar index was 87.90. It is now 77.31, a drop of 12%.

    In the same period Reuters CRB Commodity Index (which tracks 19 commodities in world trade) has risen 18%.

    The dollar value, of course, is inversely related to commodity prices, i.e., the numbers reflect significant price inflation produced by the Fed's massive inflation of the dollar money supply.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/01  at  12:28 AM
  3. But Mr. Brewton, you did not address the fact that Turk's chart shows a precipitous drop of the index between 2000 and 2008, but leveling out between 2008 and 2010.

    As for the difference between June and October, the index is volatile, and you have to average a longer period of time to draw any reasonable conclusions.

    Taking a shorter period is like saying, "Gee, it is 10 degrees warmer today than yesterday. Lucky Us! We won't have winter this year!"
    Posted by .(JavaScript must be enabled to view this email address)  on  11/02  at  10:53 AM
  4. What you see in the chart is two attempts to return to the first peak of those 3 peaks. The 2nd failed to reach the first and the third failed to reach the 2nd. That is a weakening currency (or stock if the chart were of a stock). Repeated failures to reach previous levels is not good.

    However, even if it were a good sign, it is what is happening in the last leg down that is important. It is repeated intervention to deliberately weaken the dollar to try and help exports and that is continuing, that is important.

    We could see a large correction if the FED disappoints in their announcement tomorrow and maybe even a dollar rally but, remember, not one policy has changed nor is expected to change that would be good for the dollar long term.

    Regarding people who are saying gold is a safe harbor vs. the dollar. I think that for now, that is obvious because all over the world, fiat currencies are falling and gold is the "safe harbor" many turn to. Look at this video of a gold shop in China. Ten thousand people a day go through the shop and pay cash when they buy.

    http://timiacono.com/index.php/2010/05/25/the-gold-rush-in-china/

    In many parts of the world, they still view gold as money. The central banks still refer to their stockpile of gold as "monetary gold."

    Now, at some point, gold will be going up but, not as fast as other commodities and eventually gold will either start going down or stabilize as the global economy stabilizes. There is a time and place for gold and while I prefer silver to gold at this time, gold will still do well in the coming months as Bernanke does QE2 and probably QE 3,4,5, etc.

    We are in a death spiral where if he stops, we collapse into a depression and if he doesn't stop we eventually hit hyperinflation and collapse anyway. There is no way out of this and even the President's own people have said we can't grow or tax out of this. We have to cut spending but, that would cause a depression and they don't recommend that now.

    Yet, the more we spend, the more jobs and income that depend on that spending so that pulling it back, causes the economy to plunge.

    This is the result of 90 years (the 20's was the start) of bad monetary and economic theories being used to base policies on in both parties.

    As more and more nations make non-dollar trade deals, the weaker the support for the dollar gets.

    Our government is trapped and it doesn't matter who controls Congress or the White House. No President, Party, or Congress can stop the collapse that is coming to the dollar, our economy and our standard of living. The Gov. Accounting Office has been warning and warning for years of this.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/02  at  11:21 AM
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