Real Reason US $ Soaring
Real Reason Why
Dollar Is Soaring
For edition of October 27, 2008
The absurd spectacle of a short-squeeze driving a worthless dollar sharply higher is bound to make life difficult for gold bugs in the weeks and months ahead. If you are among those wondering what to do, you need first to understand that the dollar’s surreal strength is not a flight to quality, as nearly all observers still seem to believe; rather, it is due to the fact that those who owe dollars are unable to roll their loans and must settle up immediately in cash. We predicted this scenario years ago and reprinted the essay recently in our daily commentary. (Click here to receive this commentary free each day by e-mail.)
One reason the mainstream media have failed to grasp the true reason behind the dollar’s steep rise is that mainstream thinking is congenitally incapable of grasping the bluntly obvious fact that the dollar is fundamentally worthless. The Wall Street Journal’s Peter McKay, for one, noted in a recent front page article that investors typically migrate toward the dollar in times of stress. But to think such a thing of Arab, European and Chinese investors is simply condescending, since they know as well as you and I that the trillions of dollars worth of bailout and backstopping commitments the U.S. Government has made in recent months can never be redeemed in fully valued dollars. Since this makes the dollar’s collapse inevitable, foreigners would have to be very stupid indeed to be buying dollars by the truckload now for reasons of “safety,” as the pundits and commentators would have us infer.
Challenging for Gold Bugs
For those who have been hoarding physical gold in order to tide themselves over in the hardest of times, the implications are challenging, to put it mildly. We delved into this a couple of weeks ago when we raised the possibility of Gold spiking to astounding prices when the dollar finally collapses. Such an eventuality could make it well nigh impossible for hoarders to exit gold at the top -- and that’s assuming there would be a clear choice of alternatives. But the more immediate prospect of a massive short-squeeze in the dollar, causing further, and perhaps severe, weakness in the price of gold, makes the challenge of holding onto one’s bullion even more daunting.
There are two things to consider if you’re worried that this is how things could play out. For one, and as we continue to emphasize, gold seems very likely to hold its purchasing power no matter what its price in dollars. And for two, it’s possible gold will go no lower even if the dollar gets squeezed to the moon. Has gold perhaps bottomed already? We are open to the possibility, since its low last week came within a few dollars of an important downside target at 686 that we identified.
* Note: This article was written by Rick Ackerman. He knows what he's talking about and his technical analysis is generally bang on. Well worth the $30 a month subscription price. www.rickspicks.com.
SR