We note with alarm that the US Dollar Index is hovering around 79.96 [1]. This is the first time that it has dipped below the critical support level of 80. If the USD index closes below 80 for three trading days in row, beware! The Chartist Gnome [2] tells me that the likely support level is 76. Just as I warned you, folks: Lower interest rates–instituted as a stopgap for the current liquidity panic–are to the detriment of the value of the US Dollar on the FOREX. If the Ben Bernanke and his band of fools on the Federal Reserve Board of Governors cave in to political pressure and drops interest rates still further, it could very well trigger a massive sell off of dollars. If you think that the economy is bad now, just wait until the headlines scream: “Dollar Collapse!”
I predict that devaluation of the US Dollar will trigger an investor flight to safety. Savvy investors will diversify out of dollars ASAP. That means precious metals and perhaps select foreign currencies, but even the best of those–such as the Swiss Franc–are much like the dollar. In essence they are “I.O.U. Nothing” instruments. (Meaning that they are not redeemable in specie.) The “safety” response of most sheeple [3] will be toward US Treasury bills, short-term T-bonds, and Treasury money market funds. (Basically any investment with “Treasury” in its name.) But that won’t provide any real protection if the dollar itself is wiped out. Sure, you’ll be “safe” and get all you money back, but by then, what will that currency represent? What will those dollars buy you? If there is a full scale dollar collapse, we could be living in a Zimbabwe-like hyperinflation in less than 18 months. For those of you that are retirees that need a regular return to live on. (which of course tangible precious metals can’t provide) the only US Treasury paper that I can recommend are TIPS [4], which of course are inflation-indexed.
The bottom line: the only truly safe investments in today’s market are silver and gold. It is no wonder that the spot gold price is around $700 per ounce and silver is at $12.53 per ounce (as of Friday’s New York close.) Obviously someone out there is seeing the big picture. I expect major gains in the precious metals markets in the months to come, as the dollar continues its painful, inevitable slide. FWIW, I’ve been a vocal Silver Bull ever since February 2001, when silver dipped below $4.55 per ounce. [5] Mark my words: I still think that silver is headed past $50 per ounce.