The banks are currently undergoing various forms of stress testing, which, good, bad or indifferent are having the effect of reassuring the investment community that all is well as evidenced by the improvement in the stock prices of the banking sector, however, the decline of the US Dollar appears to be accelerating.

As an example we can see that today the Bank of America (BAC) rose 19.31%, Wells Fargo (WFC) rose 23.66% and US Bancorp rose 13.22% with other banks registering single digit gains. Considering just how much money they need to stay afloat it is mind boggling that are worth anything at all. Still with government cash to shore up their decimated balance sheets they present an investment opportunity to both investors and speculators. Stocks this volatile are magnets for day traders and options players looking to be on the right side of the next dramatic move.

Standing quietly in the background so as not to attract attention is the US Dollar which has fallen back since the 20th April 2009 when it topped ‘89′ on the Index and is currently heading south as we can see from the above chart. The technical indicators are drifting lower so it will be interesting to see if it can bounce once the RSI hits ‘30′. Failure to stabilize shortly could mean that it is about to re-test last summers low of ‘72′ as confidence ebbs away.

In the mean time this demise of the dollar has had a positive effect on gold as we see it trading $17.40 higher in New York, of all places, to close just above the $900/oz parapet at $903.20.

The move by the Chinese to almost double their gold reserves gives us a clue as to how they feel about the dollar as a store of wealth. We expect their acquisition programme to continue at a steady pace and as secretly as it has begun providing gold with a little more in the way of support.

Hang on to your core positions despite the volatile nature of the markets as gold is coiled for a big move north sometime this year. Thats about as accurate as we dare to say at the moment given the myriad of unknown variables, however as the situation evolves we will be looking to increase our exposure to the precious metals sector as this bull market gains the recognition it deserves. Come Christmas Eve we expect to see gold at a new all time high putting a smile on the faces of gold bugs everywhere.

Have a good one.

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