Tuesday — Question Time on Gold and the Dollar

I have a new video today for UncommonWisdomDaily.com.  If your computer has trouble playing the video, here is a transcript: http://www.uncommonwisdomdaily.com/wp-content/uploads/2009/08/UWD147.pdf

The question comes up, “what will I do if the U.S. dollar continues to rally, sending gold and hard assets lower?”

A good question.  The US dollar could rally, primarily if investors get nervous and start bailing out  of stocks and commodities.  If that happens, the US dollar Index has strong overhead resistance at 82, 88 and 90.  It would be amazing to see the US dollar rise above 90 in the next year.  That doesn’t mean it can’t happen … but the chances seem very small.

But I would point out that there have been time when the dollar and gold move together, and that even happened recently.  Why, because when investors get really scared, they go beyond putting their money into cash and put it into gold.

A strong dollar rally would likely weigh on precious metals.  However, zig-zags aside, I still think the big trend in the dollar will be lower, and precious metals will be higher.  The question is, how much pain will we have to endure along the way.

And then there are the worst-case scenarios … the ones that keep me up at night. For example I could easily see - under the wrong circumstances - the deflation we are experiencing now turning into a full-fledged currency crisis.  Will you want to own metals then?  Yes.  Will you want to live through that crisis? No.  Hell, NO!

But if I get weekly “sell” signals on gold, I’ll let subscribers know.  Depending on your investing time frame, you can always A) close out long gold positions B) add hedges and/or C) go into cash or even long the US dollar/short other currencies.

HERE’S WHAT I’M READING …

Weak consumer spending will last for years

When debt levels are enormous, as they are right now in the United States, an economic downturn becomes existential for a great many forcing people to reduce debt. Recession lowers asset prices (think houses and shares) while the debt used to buy those assets remains. Because the debt levels are so high, suddenly everyone is over-indebted. Many are technically insolvent, their assets now worth less than their debts.  And the three D’s come into play:  a downturn leads to debt deflation, deleveraging, and ultimately depression.  The D-Process is what truly separates depression from recession and why I have said we are living through a depression with a small ‘d’ right now.

In the health-care reform debate, the insurance lobby is a wolf in sheep’s clothing

Before we start rethinking whether the insurance companies are as malevolent as they’ve been made out to be (spoiler alert - yes, they are), it’s worth noting just how remarkable their relative absence from this debate has been. Whatever else you can say about them, they’re not the ones whipping up fear of “death panels,” or comparing Obama to Hitler, or screeching about “socialized medicine.” In fact, if you didn’t know about their history, you might think they’ve been desperately hoping for positive change.