The Dollar's Woes Accelerate

Written By Brian Hicks

Posted November 27, 2006

DENVER, CO — While I have been talking about the problems with the dollar for many years now, alarming red flags regarding the dollar are suddenly showing up in the mainstream media. This is a major shift in reporting and a strong signal that changes in the dollar’s value against all currencies, including gold are in the works.

Look at some of these quotes that come from the media in the last few weeks.

Washington (Reuters) Former Federal Reserve Chairman Alan Greenspan said on Thursday that both private investors and central banks were shifting away from the U.S. dollar and toward the euro. "We’re beginning to see some move from the dollar to the euro, both from the private sector… but also from monetary authorities and central banks," Greenspan told a conference sponsored by the Commercial Finance Association.

Treasurer Peter Costello has called on East Asia‘s central bankers to "telegraph" their intentions to diversify out of American government bonds, helping to prop up the US dollar and hold down American interest rates.

There was further support in comments from Peoples Bank of China governor Zhou Xiaochuan who said at a Frankfurt conference that China has very clear plans to diversify its currency reserves, which now stand at more than $1 trillion. A wide range of instruments are under consideration, including gold and oil.

Oct. 31 (Bloomberg) – Japanese life insurers, who manage the equivalent of $1.6 trillion in assets, will cut holding of U.S Treasuries after the cost of protecting the investment against currency swings surged, according to Calyon Securities.

Washington (Nov 01) – Democratic lawmakers warned on Thursday that U.S. reliance on foreign countries to purchase U.S. debt could lead to a financial crisis as they faulted the Bush Administration’s economic stewardship.

"If the United States does not begin to take steps to reduce its unsustainable dependence on foreign borrowing in an orderly way, there could be a run on the dollar that could precipitate and international financial crisis and a sharp increase in interest rates,’ a report issued by Democrats on the congressional Joint Economic Committee and House of Representatives Financial Services Committee said."

This is a marked shift in reporting about the dollar.

 

I expect that in the year 2007 we will start to see a major run for the exits away from the dollar. How bad this gets is anybody’s guess, but the bottom line is that this will be incredibly bullish for gold and should take the yellow metal to new all-time highs most likely over $1,000 an ounce. How high gold will go will be in direct proportion to how badly the dollar gets hit.

We have known this day was coming for quite some time, but to see it reflected this way in the above quotes in the main stream media is actually quite frightening. A massive move away from the dollar and U.S. debt instruments by foreigners has always been the end game for the U.S. debt picture. Such a move could spell disaster for the dollar, and the U.S. economy.

Could this also mean that the U.S. potentially is on the verge of losing the dollar as the benchmark currency? For now we will have to wait and see. The other key to that question is whether or not oil contracts will remain priced in dollars as these problems unfold. My guess is that the U.S. will have to counter any move in oil being priced in any other currency at all cost. Losing that status would mean the immediate end of dollar denomination and a massive exit by foreign interests and investors into other currencies. Let’s hope that does not happen anytime soon.

For now our positions in gold look like good bets for the short, mid, and long term scenarios. You simply cannot go wrong with gold at its current price levels with such news affecting the overall market.

A new wave for gold is on its way. This could be the biggest wave we have seen since the bull market for gold started in 2000. It certainly should draw alot more attention from a greater number of investors as this takes place.

Make sure gold is a part of your portfolio.

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