Did anyone watch the action of the dollar today?

As I was unavailable most of the day I was unable to see the action until I got home but the dollar once again broke through the 75.00 mark – all the way down to a low of 74.77.  As the trading day was coming to an end the USDX managed to make it back above the 75.00, also known as what traders sometimes call the support level.

A number of people I speak to think 75 is a critical support level as there is very little in the way of support on the way down to the next major support level of 72.  When 72 breaks all bets are off the table.  This action is interesting to note, however, as the dollar manages to get back to support by the end of the day and has consistently done so over the past several weeks.

My question focuses on what happens when the dollar closes below that psychological level? As a betting man I would guess a movement lower from a mid-term perspective. We have to remember that investments rarely just go to zero (delisting of stocks/bonds aside).  What is often seen is a zig zag pattern – one step forward and two back.  While I would expect the USDX to find its way to the area around 72, it will not be a straight drop.

While a number of events are pushing the dollar lower the news of the day that may explain the action is this: China Signals That It May Allow Currency to Rise Against Dollar.

This is yet another signal, along with moving to a basket in place of the U.S. note as the reserve currency and not selling oil in dollars, that points to the U.S. dollar falling.  If China strengthens the yuan the government is providing a clear sign they have concern about the rise in property and equity prices within their country.

They are moving to prevent inflation.

From the U.S. perspective Chinese goods will become more expensive, possibly impacting the U.S. economy, and it also signals to the world that China is no longer interested in the dollar as an investment.  Also, the possible move to strengthen the yuan can be seen as retaliation for President Obama’s protectionist economic decisions that end up negatively impacting China.

Interesting times we all live in.

My post titled “The Coming Economic Storm” raised a number of questions from readers and the focus was on the movement in gold. My position is world governments moving money out of the U.S. dollar into something physical, a commodity, and gold is one of the resources where they are moving to.

One thing I did not place in my original post was WHY I started to hold this view, let me clear this up before moving on to backing up my position on government actions.

As the stock market recovered from from the March 2009 low I had expected to see the price of gold to move down; however, that did not seem to take place.  Traditionally, when there is uncertainty in the world – or in the U.S. markets – gold would increase in price.  When things would look “good” the price of gold would start moving forward. When it became apparent the price of gold was disconnected from stock market I started to think something else was up.

Now, why is it that I think world governments are moving into Gold and away from the dollar as an investment?

• The IMF is selling 200 tons of gold to India
• China is expected to buy 203 tons of gold from the IMF
• And China has added 454 tons of gold since 2003
• Russia may buy gold and cut rates
• Pundits are now saying gold is going to be currency again
• Gold is finding buyers outside of governments

And what is missing from this picture?  The United States buying gold for their reserves.

It is clear other governments are stockpiling gold, and as a result, other investments are not being funded.

What other investments have you watched fall over the last 8 to 12 months?

The U.S. Dollar.

Right now, it looks as if the U.S. Dollar is marching toward the end of reserve status.  The question is how long will it take.