This chart says it all:

It shows that global sentiment is moving away from the U.S. dollar and into gold. A weaker dollar cascades into other markets and inflates value of other products. Export-based sectors increase.

In fact, the Standard & Poor’s GSCI Index of 24 raw materials reached its highest level since October 2008. Even corn and soybeans are getting a lift from a weaker dollar.

But clearly, the U.S. dollar-gold nexus has become the main theater of action and is getting all the attention. The key strategic currency question is whether this dynamic is becoming a major “outlier” event that ultimately cannot last.

Nobody knows the answer.

We do know that it can last a lot longer than most people believe because of how market sentiment feeds upon itself. Right now, the crowd is rushing into gold and running from the dollar. When “buy your gold” ads and booths are everywhere, it’s a sign that a top, at least from a sentiment point of view, is being formed.

A great deal of the near-term U.S. dollar’s weakness is also due to the “expectation” that the Federal Reserve will proceed with quantitative easing. But any surprises on the level of easing, or even surprise statements by Fed Chairman Ben Bernanke hinting at the level of easing, could cause a major sell-off in either the U.S. dollar or gold.

Also, do not ignore the continuing political and economic pressures now becoming known as “currency wars” to keep a currency low in value. Globally, it’s good politics, but we can’t have all the currencies simultaneously lower in value.

As I have also pointed out, the upcoming U.S. elections will very likely have an impact on “expectations” regarding U.S. fiscal policy toward spending. Fear of debt expansion is part of the pessimism driving the dollar down. A strong reversal of power may be a catalyst for stemming the flight away from the dollar.

All this benefits us as currency traders, because, in a real sense, we simply look for opportunities that provide high rewards and known and minimum risks.

There is no doubt that U.S. dollar scenarios offer short-term as well as longer-term currency option plays. Strategies and tactics also exist that allow us to play short-term countertrend moves and still be in long-term timeframes — in either direction or both directions.

Let’s not forget though, that the U.S. dollar is not the only currency option game in town. Other opportunities are forming for further winning plays on the Aussie and Canadian dollar as both are probing parity. (I’ll chime in on this in a future edition of the Penny Sleuth.)

For now, enjoy your weekend!

Sincerely,
Abe Cofnas
Penny Sleuth

October 15, 2010

The Dollar-Gold Trade: How to Play Gold’s Upcoming Slide was originally featured in the Penny Sleuth.

For starters, let’s take a look at the U.S. Dollar Index (DXY).

The DXY acts as a bipolar sentiment gauge. In a crisis, when the market fears uncertainty, the DXY sees capital inflows, pushing the index up. We saw this after the collapse of Lehman Bros. in September 2008.

On the other hand, if investors fear increased deficits and weak U.S. financial conditions, the DXY falls. That is the case now as investors wrestle with a U.S. “recovery” that hasn’t seen an improvement in unemployment — a textbook jobless recovery. As investors struggle to figure out what it means, the DXY is reaching six-month lows this week, as the chart shows.

This is strategically interesting for us because the fall of the U.S. dollar sets up reasons for a rise in the future.

If job recovery improves, and if there are expectations that the United States will not continue on a path of increased monetary easing — which are two big ifs — the U.S. dollar becomes relatively more attractive.

This mix of economic fears and fiscal expectations makes the upcoming midyear elections even more important as a currency event. A shift in the political control of Congress will imply a shift in economic prospects. All this adds to market uncertainty. It also points to the big advantage of currencies as an alternative asset category. While the equity markets suffer with uncertainty — currency markets thrive and break out of ranges.

But let’s get back to the dollar’s potential rise for a minute…

The dollar is gaining today on the heels of worse-than-expected jobs numbers that hit the market this morning. As investors sell their stocks in favor of safer assets, like treasuries, the dollar is seeing a boost at a key time. We could see an attractive trade materialize from this in the near future.

[Editor’s Note: As usual, currency ETFs can provide stock investors with exposure to forex without the need to be an expert – for dollar bulls, the PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP) gives investors access to an instrument that rallies when the dollar is doing well.]

Sincerely,
Abe Cofnas
Penny Sleuth

September 23, 2010

[Independence Note: Unlike scores of other penny stock resources, we’re 100% independent from the companies we talk about in the Sleuth – that means that we never accept compensation in exchange for profiling a company, and our editors never own a position in any stocks they talk about.]

How to Trade an October 2010 Rise in the Dollar was originally featured in the Penny Sleuth.

We are now in the pre-election sentiment period, where the world markets will focus on U.S. elections and possible shifts in fiscal policy. As you know, it makes this a perfect time to start thinking about currency plays on the election. I will soon have a very direct focus on this matter.

In the meantime, let’s turn to three key currency markets I have focused on and see what is on the forex horizon as the fall begins. Notice how basic patterns give us very good insight on price direction.

USDJPY

The dollar–yen remains a major part of global fundamentals on the world economy. And the last few weeks it’s been all about the yen, with the Japanese currency hitting a 15-year high against the U.S. dollar the last week of August – and more significantly the Bank of Japan’s intervention to devalue the currency and keep export demand high.

Now a bottom looks like it is forming. The upside potential is large, and as you already know, I think there is a lot of action in this pair. I’m betting that the yen will continue to fall in the short-term.

USDCAD

The Canadian dollar is clearly a prisoner of U.S. economic expectations. While parity with the U.S. dollar looked probable in May and July, it is now far away. The key thing to look for in the coming weeks will be whether the USDCAD can get even weaker.

We will watch this one for breakout potential.

EURUSD

The EURUSD is coming into a breakout period, and the technical conditions are now commanding our attention. With the German economy doing very well, can the EURUSD pair be far behind?

Europe’s sovereign debt woes continue to drive direction in this currency pair – and will likely continue to for some time. Last week’s relatively successful (read less bad) Portuguese bond auction should bring some optimists back to this currency pair in September – you can bet I’ll be watching this one closely.

It’s still too early to tell whether this fall will bring with it the kind of forex trading volume that we’ve seen this summer – but if this month is any indication already, we could see continued interest in these markets. With world economies teetering on the brink of major news on any given day, forex traders should be presented with plenty of opportunities to rake in gains…

And as always, I’ll be here to fill you in on how to trade them.

Sincerely,
Abe Cofnas
Penny Sleuth

September 17, 2010

P.S.: If you’re not familiar with trading currencies, there are plenty of ETF options out there that can give you exposure to currency moves without having to deal with the nuances of the currency market. For investors who want to make more direct plays, I’ll have more details very soon…

How to Trade 3 Key Currency Pairs in September was originally featured in the Penny Sleuth.

The equity market sell off was triggered by weak June trade deficit numbers that showed weak US exports and a shocking (to some) increase in US imports. The S&P 500 reacted negatively — in part from a tired market condition — as the attempt to push above the June highs failed. The 10% move higher off the yearly lows was looking to correct as investor sentiment remained fearful and cautious.

Also contributing to the extreme bearish pressure in the last few weeks was the accumulation of built up protective stops from the month long market climb. When prices moved lower standing exit sell orders were triggered, which sent prices lower and so on.

The sell orders below increased the magnitude of the move. When the smoke cleared, most major indexes were sitting on mid-sized losses for the month.

Not So Deep Digging

But all is far from lost. You see, this recent price action was not a change in the near-term trend but rather a standard pull back to support levels. The S&P’s 1065 level held strong and most importantly for a bullish strategic mindset, new lower lows were not made after the gap last week. This can be interpreted as a positive when the market was on its heels additional selling did not emerge.

The VIX, which measures investor fear, was also unable to reach above 28 and break its downtrend as another positive indicator. It bounced on the sell off but did not rally with subdued concerns of more selling. Combined with the S&P support holding at that 50% retracement of the 1130 high, and no spike in the VIX tell that last week may have been an isolated event.

The dollar has since turned back lower as the two-day temporary bounce on flight to quality purchases has dissipated. All signs are positive if the stock market can get some catalyst to start the climb again with the majority of earnings behind us. Remember, second quarter numbers are what drove the market on its last run.

Taking a Look at the Commodities

With that economic data behind us, let’s take a look at what’s happening in the commodities…

For starters, the dollar decline is a much-overlooked aspect of the recent rally we’ve seen in grain.

US grain is much more attractive to global buyers with the present currency discount. That has added another layer of price support with additional demand to push corn and beans higher last week. The extreme highs from August 5th are within range as both closed nearly 10 cents higher on the week with renewed buying. Wheat in contrast lost 25 cents for the five trading sessions and awaits new fundamental drivers.

Adding even more support to grain prices, namely corn, was this August 13 analysis from the Dow Jones Newswires:

The potential for increased global demand for U.S. corn as a result of reduced production of alternative feeds propelled U.S. corn futures. “People are starting to realize that U.S. corn exports could exceed U.S. Department of Agriculture estimates released Thursday,” said Terry Reilly, analyst with Citigroup in Chicago. World feed markets will have less wheat and barley production from Russia and Europe as a result of extreme droughts, and that will make U.S. corn attractive to importers as a cheaper alternative feed source, Reilly added. Prices jumped Thursday after the U.S. Department of Agriculture increased its forecast for corn exports in 2010-11 by 100 million bushels, or 5%, from July to 2.05 billion bushels. The demand outlooks overshadowed record projected U.S. production, allowing the market to break away from the influence of the volatile wheat market.

Bullish news like this is finally starting to get digested in the corn market. Remember, until now all we’ve heard is news of a bumper crop for corn – but, as I’ve stated before, high expectations can let you down. I’ll be keeping an eye on the grains in the weeks to come…

[Ed. Note: If you want to make a direct bet on rising grain prices, there are plenty of options available to you. Some of the easiest plays can be found in grain ETFs, which track baskets of grains that trade on commodities exchanges. A couple of options include the iPath Dow Jones UBS Grains Total Return Sub-Index ETN (NYSE: JJG) and the PowerShares DB Agriculture Fund (NYSE: DBA).]

It all comes back to commodities,
Alan Knuckman
Penny Sleuth

August 24, 2010

[Independence Note: Unlike scores of other penny stock resources, we’re 100% independent from the companies we talk about in the Sleuth – that means that we never accept compensation in exchange for profiling a company, and our editors never own a position in any stocks they talk about.]

August 2010′s Market Outlook: Sell Dollars, Buy Grain… was originally featured in the Penny Sleuth.

This may be unwelcome news for stock traders, but it is not bad news for investors who take part in forex currency trading. The swings from risk aversion to risk appetite are always with us. It may change from day to day and week to week, but it is not a surprise. The key to success is to correlate the prevailing sentiment with the trading opportunity. Let’s look a bit closer at the current risk-aversion sentiment.

The chart below shows an interesting co-movement between the S&P 500 and the USDJPY from October 2009. When the S&P strengthens, the USDJPY chart also moves up. When the S&P weakens, the USDJPY chart moves down. This is clearly showing that the yen is acting as a “safe-haven” basket when the market is risk averse.

For equity investors, this is a significant contemporary correlation. It means that equity portfolios can be protected with currency options. That is, a put on the USDJPY becomes a protective strategy for those fearing further declines in the U.S. equity markets. If the S&P falls, you can expect the USDJPY to fall in tandem – increasing the value of your protective put.

A Reuters article last week provides further insight into the dynamics of how risk aversion plays out in the currency markets. Under the headline, “U.S. Dollar Rises Broadly On Global Growth Fears,” it says:

The U.S. dollar rose against major currencies on Thursday, extending the previous day’s gains, as an unexpected rise in U.S. weekly jobless claims and weaker-than-expected euro zone data spurred safe-haven demand.

Why would the U.S. dollar get stronger when the U.S. economy is weakening? I’ve discussed this before – from a global perspective, money still has to go to where it is protected. In times of trouble, the U.S. dollar becomes, like the yen, a “safe-haven” basket. That is why holding the DB U.S. Dollar Index Bullish Fund (UUP) is a risk-aversion play. The U.S. Dollar Index is breaking out of a downside trend and has the potential of moving 10% within weeks, taking UUP along for the ride.

What we have, however, is a very interesting situation. We have the dollar weakening against the yen, but also strengthening as a global basket. It is a balancing act and very delicate. Too strong a yen provides great problems for the Japanese economy. As a result, intervention expectations are being voiced. The USDJPY pair is nearing major support at 84.60.

All this bodes well for formulating option-trading strategies – I think a USDJPY play could deliver impressive gains for investors in the next few days. If you’re new to playing forex options, stay tuned; I’ll have more details on this lucrative investment strategy in a future edition of the Penny Sleuth…

Sincerely,
Abe Cofnas
Penny Sleuth

August 17, 2010

The Risk Aversion Investment Strategy was originally featured in the Penny Sleuth.

In fact, recent economic uncertainty regarding a U.S. recovery is causing an increase in bearish sentiment on the U.S. dollar. The U.S. dollar index is approaching a key support level of 80, as you can see in the USDX chart below:

Below 80, we enter virtually new territory from a technical and psychological level. However, option strategies should always consider alternative scenarios. Just as the crowd is bearish on the dollar, it’s useful to see what scenarios could point to a bullish dollar countermove.

Part of a contrarian view on the U.S. dollar is understanding that dollar valuations are based on more than just economic news. Even if the economy is weak, the U.S. dollar can still go up. We saw this in September 2008, when the market breakdown was followed by a surge in the U.S. dollar.

Today there is increasing attention on government deficits. And those emotions and can become as important as economic data in impacting the value of the U.S. dollar. It’s all leading to a major “event-risk” that is now on the horizon – the U.S. mid-term elections in November 2010. Elections always have an impact on currencies. They affect currency values because they introduce uncertainty regarding the outcome, and therefore more volatility.

It is not too early to start thinking about the upcoming U.S. elections and how they can affect the U.S. dollar.

To see why, let’s look at some recent history — more specifically, the British elections of May 6.

The election resulted in a shift in control of government to the Conservatives, in a coalition with the Liberals.

On May 6, the pound sterling was at 1.4470. Since then, it has proceeded to climb in a clear upward channel to 1.5835. The fiscal austerity budget and policy that new U.K. Prime Minister David Cameron introduced to Parliament on June 22 provided even more momentum in the pound sterling.

This is not a coincidence. In effect, the currency market also voted its approval of Britain’s departure from the era of stimulus spending to an era of fiscal prudence. This sentiment shift is now global in nature, and has pitted traditional Keynesians who champion public sector spending to trigger growth against public sector deficit hawks who urge the contraction of the public sector.

EU central bank president Jean-Claude Trichet is an example of the anti-Keynesians, while Nobel Prize-winning economist Paul Krugman and Financial Times economist Martin Wolf have championed further spending. There should be no doubt that this debate will dominate the attention of the markets in the coming months.

So, then, how will the U.S. midterm elections impact the U.S. dollar?

If the elections result in a shift in control of the House of Representatives, from the Democrat party to the Republicans, a policy shift will surely occur – taking away fiscal stimulus and increasing prospects of a deficit spending reductions. If the Senate also falls to Republican control, the magnitude of a sentiment wave expecting fiscal “austerity” is even more probable. Such a total shift in control of the Congress will represent a political earthquake. It will also represent unique trading opportunities in the currency market.

In the near future I will be articulating several trading scenarios that relate to the U.S. elections and the U.S. dollar.

It could be an unprecedented opportunity for option trading. Stay tuned!

Best,
Abe Cofnas
Penny Sleuth

August 12, 2010

Event Risk: How Elections Could Impact the Dollar Trade was originally featured in the Penny Sleuth.

But some things provide “reasonable markers” to see what a currency is doing. One of my “favorites,” although I hate to call it that, is the “civil unrest factor.”

Across the Eurozone escalating economic problems and disagreements between members and neighbors have touched off riots and outbreaks of violence. People involved in civil unrest are a multifold problem. First, they have too much time on their hands because they are not working. Jobless citizens, especially in a heavily socialist culture, are a continual drag on the system. Second, it costs money to keep repressing social upheaval — presenting another drag on the system. Additionally, the passions and fears of men being what they are, such activities tend to draw in more normally productive folks as the snowball gains speed and volume.

Here in the United States, we are not facing such difficulties (yet). This means a more reasonable system of work and distribution of goods and labor. All in all, this is good for a culture, the body politic and the economy. As a result, it also breeds greater confidence in the currency. And when all is said and done, investment money will go where there is a reasonable likelihood of return, even if the return may be lower.

Specifically, there are several exotic currencies that have offered high rates of return for speculative investors and traders, like the Brazilian real and the Indian rupee, just to name two. But it is difficult to place large sums of money there simply for the sake of the wild swings in value. A high interest rate is no good if the principle of the investment is destroyed by currency depreciation.

This is what has been good up to this point in the recession/depression for the U.S. dollar. And if this continues to unfold over the next year or two in similar fashion, this would still produce U.S. dollar strength compared to the euro simply by the “fear factor.”

Now let’s end with a look at my favorite currency, the Australian dollar.

The Aussie dollar chart looks remarkably like the euro — going back to the beginning of June. All things considered, that’s rather remarkable given the relative strength of the Aussie economy compared to the Eurozone. Nevertheless, fundamentals will eventually rule the day, and though we may have to wait it out a bit, we look for the Aussie to rebound in the future.

One of the difficult parts of the equation at this point is the widely reported and detrimental riots in China’s western Urumqi (pronuonced U-rum-CHEE) province. Ethnic fighting between Muslims and Chinese citizens has threatened to overpower the police force.

As you know, Australia’s success going forward is inextricably tied to China. So worries about riots in one part of the country can certainly be detrimental in other parts as well. Even though the violence in other provinces may not be ethnically related, once a group of people feel they have been wronged and have the sheer numbers to overpower a military or police crackdown, all heck can break loose.

Remember, there is significant fear of unrest all over China as the depression sets in. The people were just getting their first dose of “la dolce vida,” only to have it stripped away. And gone are the days when they trusted their government to provide for them. Now it is beginning to look more like the enemy than a loving “big brother.”

For now, though, the Aussie dollar hasn’t been impacted by the fray. It has been well supported at the 78.25 level. A strong close below 78 on the daily chart would invalidate that forecast, and likely lead to more downside. We’ll just keep our eyes open.

Until next time…Happy Trading!
Bill

July 14, 2009

Why the Aussie Dollar Is My Favorite Currency was originally featured in the Penny Sleuth.

Yes, there are a few other asset and income plays as well in the market. After all, there’s still an economy to run out there. There are 303 million Americans, and 6.2 billion other people in this world, who want to eat every day. But much of the stock market is a crapshoot. If you love pain, then the broad stock market is the place for you. While gold and silver represent the flight to safety and quality.

The U.K. Telegraph put it nicely: “As investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable — the U.S. dollar will have to take another major fall. The dollar rally that began in July and pushed the pound’s value against the greenback significantly lower has come to an abrupt end as markets face up to the fact that the currency will have to absorb the effects of a sudden shocking increase in America’s budget deficit.”

So we see lots of bad news for the dollar. But when you own gold, it’s your asset. With a specific gravity of 19.3, gold is dense, non-reactive and otherwise immutable. Gold is nobody’s liability. As one of my old professors at Harvard used to say, “That’s physics.”

Gloomy News from Wall Street

Speaking of physics, I’ve looked east of the sun and west of the moon. I can’t see much good news for the U.S. dollar on any horizon. Really, what’s gloomier than the news from Wall Street? The investment model of the modern era (borrow short, lend long, pay big bonuses) is dying before our eyes. “And it’s about time,” some might say. But it’s happening on our watch. So we had better suit up in battle-rattle.

Wall Street’s losses are in the range of hundreds of billions, maybe trillions. Which prompts me to inquire, where are Bonnie and Clyde when you need them? At least the Barrow couple knew who they were and what they did for a living. To their credit, on their last foray the dynamic duet had the guts to shoot it out with the cops and go out in tragic style.

But now the modern bank robbers are talking about how they should get big bonuses for all the good work they put in up until things blew up. Really, I’m serious. Lehman Brothers wants to pay $2.5 billion in bonuses to 10,000 employees. That’s an average of $250,000 per person. (Except I think the office runners and secretaries will get less than $250K and a select few will rake in a lot more.) What has anyone there done to deserve $250,000? Did I miss the news about somebody at Lehman discovering a cure for cancer? It’s all just so…Baby Boomer.

At the end of the day — and the clock is ticking fast — it’s too bad that the wrong people are going to get paid. And bonuses? Oh, if only I could be a bankruptcy judge for just one hour.

The War on Risk

Do you recall the $700 billion of borrowed money that the U.S. paid over the past seven years to fight the so-called “War on Terror?” Well now, with the stroke of a pen the U.S. taxpayers will pay another $700 billion (and probably more) for the “War on Risk” in the next year or so.

War on risk? It seems that way to me. Let’s back up. In the past few years — seven or so, coincidentally — a lot of people gambled and lost. People bought houses they couldn’t afford. Brokers arranged the loans. Bankers lent the money. Other bankers bundled-up the mortgages and sold them as “asset-backed securities.” Rating agencies sprinkled their holy water on the transaction. Insurance companies insured everything against default and loss.

A lot of people were making a darn good living for a while. But it was all a farce based on cheap credit and an abiding faith in a “something-for-nothing” way of life. And it’s too bad that a lot of people bought — as the saying goes — “as much house as they could afford.” Except they couldn’t afford it.

So now the whole mess is falling apart. And in true Baby Boomer fashion, the key perps on Wall Street want to change the rules and stick the house with the bill. That is, the White House and the House of Representatives, and your household as well.

The advertised number of $700 billion for the Wall Street bailout is just the posted price — the “loss leader” to get the American people into the store, so to speak. But get set for a bad case of sticker shock as events unfold. A group of business reporters at Bloomberg tallied up the raw numbers and came up with their own number of $1.8 trillion.

$700 billion? $1.8 trillion? When the numbers are that big, does it even matter? It’s the inflation-adjusted equivalent of fighting World War II again. Except who is the enemy?

Whatever the final tally may be, it cannot be good for the U.S. dollar. So buy gold and silver. If you can’t acquire the metal in the form of coins or bars, then buy precious metal stocks of companies with ore in the ground.

Until we meet again…
Byron W. King
September 24, 2008

Gloomy Dollar News Strengthens Precious Metals was originally featured in the Penny Sleuth.

So we’ve seen quite a tumble, led by declining oil. But then again, oil had quite a run-up. I’ve said before that oil was climbing too far, too fast. And over the past few weeks, oil tested the $150 mark. But like Gen. Pickett at Gettysburg, this charge to $150 failed.

What seems pretty clear is that at $140, a lot of things in this world just don’t work anymore. Airlines are, obviously, one business not built around highly priced oil. Worldwide, 24 airlines have gone bankrupt so far this year.

But there are other parts of the transport system, the food system and the economy that are cratering with the oil run-up.

Sure, a lot of things don’t work well even with oil at $130, $120 or $110. But that’s not the point. It seems that above $140, the developing world just stops developing. We saw pain at $100 and above. We were beginning to see true demand destruction above $140. So oil pulled back, and perhaps for a while.

I should add that the recent rally in financials pulled a lot of money out of oil. Last week, the U.S. monetary authorities made a fateful decision. Rather than let Fannie Mae and Freddie Mac fail, or take these two horribly mismanaged firms over via receivership, the U.S. Fed and Treasury Department, essentially, nationalized the bad risks and socialized the losses. This is going to come back to haunt and hurt us, like a guy with a chain saw on Halloween night.

Efficient Capital Markets? No Way!

And despite the oil pullback, crude petroleum is still double the price of what it was just two years ago. So we are living with a 100% increase in the nominal oil price.

The oil run-up was not all just insatiable demand meeting flat supply. I’ve discussed this in other articles. The U.S. dollar has been mismanaged for decades, and thus we live in chronically inflationary times. And couple this with the horrid shenanigans of Wall Street and the overall U.S. banking system in this modern era. Ugh!

Remember how some people used to dismiss the fact that the U.S. was de-industrializing? Remember how some people used to praise the so-called “service economy”? They would say things like, “The U.S. capital markets are the most efficient in the world.”

To which we now reply, “Oh, really?”

How could the U.S. banking and finance system ever have gotten so bad? Don’t we have regulators who are supposed to look over the shoulders of the bankers? Don’t they teach people how to be careful in business schools? Heck, here at Penny Sleuth, we’ve been writing about the looming implosion for several years. It’s not like it was some state secret.

So now we are at the moment of decision. How many billions of dollars does the U.S. banking system have to lose? OK, how many tens of billions? Hundreds of billions? When you add in the toxic derivative instruments, it adds up to trillions of dollars. And it looks like the nation is on the hook for a lot of it.

Where can things go from here, what with all that worthless paper floating around?

I understand that the Fed does not want to raise interest rates. That would just plain hit the economy in the gut with the left fist. The politicians would scream. But when the Fed wimps out, the dollar declines in value. And the cost for foreign imports, such as oil, rises. That hits the economy in the gut with the right fist. One way or the other — a left or a right to the gut — our U.S. economy is getting beat up. I’d prefer it if we just took our own national medicine and stabilized the dollar.

If the dollar stabilizes, oil should level off. And we could see the market begin to recover. So watch the dollar for your signal.

Meanwhile, the gold and precious metals stocks benefited from the declining dollar. Toward the end of June, most gold stocks all had good run-ups as the dollar fell.

You can’t really time these kinds of moves over the short term. But over the long term, the U.S. dollar has been declining in value. And precious metals have been climbing. My colleague Ed Bugos, a true gold bug, foresees gold at $1,200 per ounce by early 2009. Another precious metals trader of my acquaintance is forecasting silver at $26 per ounce. If that happens, the mining stocks will soar.

Until we meet again…
Byron King
August 12, 2008

Falling Oil Still Gives Us Investment Opportunities was originally featured in the Penny Sleuth.