2/8/10 How Much Higher Can The Dollar Rise?

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

It did appear that several global governments several weeks ago began to jawbone the US dollar higher. Even China got into the fray by suggesting the dollar will increase. Of course, all of these entities have a vested interested in seeing the dollar higher. Remember when the dollar falls, the other currencies go up against gold requiring the other countries to devalue as much as the dollar declines. But in truth, the federal gov’t does not really want a strong dollar. A strong dollar exacerbates the conditions preventing the weak economy from growing. A firm dollar should be the side effect of a strong economy with credible leadership, i.e., confidence. Consequently, other actions will be taken to mitigate the effects of ending currency swaps. The Obama administration has crafted a plan to rev the economy/create jobs which includes an emphasis on exports. A strong dollar would not be consistent with ramping exports which the gov’t will desperately try to do the rest of this year.. The only reason the $ has been strong recently is because of the potential collapse of the PIGS (Portugal, Italy, Greece and Spain). If they do default, the Euro is toast. The only alternative to the Euro now is the dollar or Gold. The dollar will not exist for long either because of the massive US spending. The last man standing then will be gold. The world does need a stable reserve currency, or a more stable currency mechanism. The first step will probably be a G-7/20 agreement for more active gov’t intervention in currency markets. Look for a slow movement toward a global currency consisting of the SDR made up of several remaining currencies including a not –so-insignificant percentage of Gold. The bottom line is that the dollar can still go up perhaps another 10%, but soon the dollar will reverse and continue its road to oblivion.

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