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« Gold Bullion ETF in Switzerland: SGOL | Main | South Africa’s golden age is coming to an end »

The US Dollar is Approaching a Major Support Level

Five day dollar 29 Nov 09.JPG

This chart shows the dollar over the last five days trying to cling to the '75' level. If this does not hold then '72' is the next major support, which if hit represents a double bottom for the dollar as the 71.34 was the previous low.

Taking a macro view of of the dollar, the chart below is courtesy of Jesse's Café Américain which may not be clear enough for you, if so, then just click here to see a full size version of it. The chart shows the dollars progress since the early 90s which has been a fairly volatile ride for the dollar.

US Dollar chart Long Term 29 Nov 09.JPG

It can be argued that the double bottom will be followed by a bounce by the dollar to higher ground which in turn would would cap any further progress in gold prices. This is not an opinion that we subscribe to as the move to gold is starting to gather momentum and the diversification out of dollars and most other paper currencies is also on the move albeit at a slow pace for now. The next year or two will see the dollar trading at the '40' level before this financial mess runs out of steam.

A default by Dubai is the latest to come and haunt us but not the last of this type of event. If the sub prime debacle has shown us that the banks are not capable of arranging and managing mortgages then why should we expect them to be successful with much larger and more complex projects. Commercial property has yet to raise its ugly head, in any downturn business's go under and the rent stream drys up so we do need to be aware that this could be the next area of the economy requiring a bale out.

Golds chart is telling us that gold is overbought and so it is easy to make the decision to reduce exposure to it. However the hard part is deciding at just what point we would re-enter the market. If you are selling some of your stocks at the moment then we wish you well, however, that call is too difficult for us make at the moment so we will stay put. Should events conspire to change our minds than we will try and trail our intentions prior to making a move.

Enjoy the week and please add any comments that you have as they all add balance to our cavalier stance on this subject.

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