Will Dollar Go Down Even More?

A prudent investor might very well decide to keep his powder dry until the next big investment trend reveals itself.

But thus the big question – what kind of powder to keep?

An investor needs a baseline. He needs to be able to figure out whether he is making progress or backsliding. An American typically keeps score in US Dollars. But there's the rub...

The Dollar is a baseline that keeps moving.

When the Euro came out in 1998, it quickly fell against the Dollar – down from $1.12 to just 88 cents. Of course, that was the era when the Nasdaq was flying and Americans were still the world's most admired people.

Since then, the tech stocks have crashed...the information age has proved a disappointment...the War against Iraq didn't go as planned...housing has gone up – and now down...and Wall Street has shown itself to be as incompetent as the rest of us.

(We all knew Washington was incompetent already.)

And now, as if to underline the point: Europe's esperanto money has risen to $1.55. In terms of what a Dollar will buy in the United States, a Dollar is down around 25% so far this century. In terms of what it will buy in Europe, it is down by about 50%. In terms of Gold, it has shrunk 75%.

So where should an American keep his money? This was a much easier question when the Gold Price was under $500 and the Dollar was worth more than the Euro. Of the three, the Dollar was the last place you wanted to be.

But now the buck is already down. Will it go down even more? Or is it time for A Dollar Rally? Now we're not only uncertain...we're unsure too.

It is still early in the credit crunch. If it crunches hard enough, the Dollar will pop up...squeezed out like a pea from a peapod. On the other hand, there will probably come a time when the Feds bring out the helicopters and begin throwing dollars out of the cargo hatch.

Then, like Germany in the 1920s... Argentina in the '80s...or Zimbabwe today...we'll see some real inflation!

In the meantime, it's probably best to play it safe. Here's what we're doing with our own money: we're splitting our cash into three parts – and putting each third, equally, into Gold (which we expect to double again from here)...Swiss francs, (because we fear the Dollar could fall apart at any moment)...and the dollar itself (because you just never know).

Bill Bonner is founder and owner of Agora Inc., one of America's largest consumer newsletter publishers. Editor of free The Daily Reckoning email – now read by more than 500,000 worldwide – he is also the author of three best-selling investment books, most recently Mobs, Messiahs & Markets (John Wiley, 2007).

Firm Trend In Gold Likely To Continue

Bangalore: Gold made sideways movement last week but a fact to note is that despite dollar gaining during the last two days of the week, it continued to rule firm.

In fact, this is seen by analysts as a breakaway from the usual trend where gold tends to fall whenever the dollar strengthens.

One of the reasons for the rising trend of the gold despite dollar strengthening, perhaps, could be that investors, mainly funds, do not repose much faith in the stock market.

Otherwise, why would gold gain 10 per cent this year, whereas stock and bond markets have declined?

Certainly, gold is in for testing times but it is likely that it will overcome these hurdles since investors are looking for a safe haven to secure their income.

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A crucial announcement was made in Tokyo on Sunday at the Group of Seven industrialised nations’ meeting to sell the gold from the International Monetary Fund reserves from April 1 to overcome the current crunch deficit.

Such sales, in the normal course, could lead to fall in gold prices. But April is a long way off and a fall, if that happens, will only be temporary. The fall could only be to stabilise and bounce back even sharper, possibly to higher levels and as stated earlier in these columns, banks sales will all be gulped by the bulls in the market in no time.

Certainly, gold looks like it will rule firm. And $920 an ounce is seen as a firm support level for the yellow metal.

Two factors will help it to sustain this support. One is inflation and the other, the US recession.

Inflation

There is another development that is likely to happen in view of the US recession. The weakening dollar is already spelling trouble for the euro.

No doubt, the European Union is more keen on tackling inflation but how long will it do is the key here.

US recession

A strong dollar will only make Europe go the US way in recession and, therefore, experts see it attempting to weaken its currency to stimulate growth. That could see gold fortunes not hinging on the euro, which means the yellow metal could only head up.

In the short-term, gold could witness some sideway movements but it could be only a matter of time before it resumes its journey upwards.

Other precious metals

Meanwhile, platinum is seen as one that holds promise and very bullish. Silver, too, is seen gaining in tandem with gold.

On the domestic front, silver has broken the Rs 21,000-a-kg mark and there could be a further sharp rise in its prices. But, according to Dharmesh Bhatia of Kotak Commodity Services Ltd, it may not be sustainable and a correction is around the corner. Coal prices are also seen ruling firm due to power woes and China’s cold weather. But talk of recession could keep base metals subdued.