Dollar Signs

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As the dollar sank to near record lows, gold responded, trading close to $700. The advance of the precious metal toward its 11-month high got the more ardent gold bulls bubbling with excitement.

Gold often takes its cues from the dollar, moving in the opposite direction of the greenback. Last week the dollar lost ground against many major and not so major currencies including the euro, the British pound, the Chinese yuan—even the Mexican peso. As the dollar sank to near record lows, gold responded, trading close to $700. The advance of the precious metal toward its 11-month high got the more ardent gold bulls bubbling with excitement.

In his recent Gold & Technology Stocks newsletter J. Taylor lets his enthusiasm rip. “As the dollar crashes, gold is heading to $4,800 and possibly much higher.” Taylor doesn’t hold back on what he sees as widespread misconceptions about the value of gold. “The ignorance about gold in America’s mainstream press and on Wall Street is amazing. The conventional ‘wisdom’ on the Street is that gold is already way, way too overpriced. Americans have been brainwashed to the extent that most people have not a clue that there is a connection between the supply of money and prices of everything…”

“Forget the Dollar, We're Gonna Making a Killing on Its Demise” exults Keith Kohl in the latest issue of the Energy and Capital newsletter. “When the dollar drops, investors will hedge with purchases of gold bullion. And gold has been threatening the $700-an-ounce mark. With the dollar trading at all-time lows against certain currencies, I fully expect gold not only to pass that mark, but to shatter it.”

Peter Grandich of Grandich Publications interjects a bit of humor with this wry comment: “The Fat Lady is in the building for the U.S. Dollar. The future of the dollar has only one ending.” When you click on the words “one ending,” you get an audio link playing “Taps.”

According to The Daily Telegraph, Ian Henderson, Britain’s best performing fund manager, now has around a quarter of the JPM Natural Resource fund invested in gold and gold mining shares. Henderson says: “We have increased our weighting by 4 percent which is quite a big move for us. Gold is the natural place to go when the dollar weakens and inflation is a worry.”

In his newsletter, Gold Forecaster – Global Watch, Julian Phillips observes: “…the growing recognition that the US Dollar may move significantly lower is generating more interest in gold and a temporary bounce in the US Dollar may not cause gold to retrace. In fact, gold may continue to move past $700 on its way to $730, $750, $800 in the process. The market is prime to make the move higher.”

Ian McAvity in Deliberations on World Markets hedges his bets on gold’s next move. “…A break (in the dollar) below the 80 & 78 levels would become a full fledged exchange rate crisis and may propel the world of gold and other precious metal related markets higher. “ But McAvity has doubts about “the Dollar going over the cliff in the short term.”

In the Dow Theory Letters, author Richard Russell expresses his belief in the enduring value of gold: “Under the current system of fiat money, the purchasing power of the dollar is virtually guaranteed to decline over time…But there is an insurance policy and that insurance policy is gold. Have some gold. When all else fails, if, or when the system fails, there is always gold.”

Despite the dollar’s woes, Steve Hochberg of The Elliott Wave Financial Forecast (March 30) has a different take on where gold is headed. “Prices (gold)...are now poised for a dramatic selloff. The upcoming decline should draw gold beneath $500…When gold approaches the target ($410.10 to $456.50), we’ll assess the pattern and accompanying sentiment to see if there is even greater bearish potential. A push past $692.50 would negate this forecast.”

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