The Dollar Turns South

For more than a year the US dollar has been in a bear market rally. Its advance was slow and plodding, marked by the occasional sharp price advance caused by a flurry of short covering, but could not be sustained. These are typical traits of a bear market rally, and all bear market rallies must eventually end.

This year the dollar was basically stopped dead in its tracks, and I've been watching and waiting to see when its downtrend would resume. In my alert on April 9th I warned: "Note that the [US Dollar] index is within the uptrend channel that has marked the bear market rally it began early last year. But over the past few months, this index has been struggling. In fact, it is starting to look downright 'toppy'." Now compare the chart of the Dollar Index in that alert to the following chart through last night's New York close. The dollar is collapsing.

The Dollar Index is breaking down. Note how its price is knifing through the bottom line of the rising trend channel.

We can therefore conclude that the dollar's bear market rally that began early last year has ended. As a result, I expect it's all downhill from here for the dollar, except for the occasional bounce. Look for the Dollar Index to collapse in the months (and probably only weeks) ahead to 80, its long-term support area. I expect that 80 will be broken this time around, marking new record lows for the dollar, probably before the end of this year.

The implications for gold and silver are very bullish. Turning again to the comments from my April 9th alert: "There are already enough bullish fundamentals underpinning both gold and silver. So the precious metals don't need more bullish news for them to climb higher, but if the dollar starts falling again against the euro and other major currencies, it will be indeed be more bullish news for gold and silver."

Published by GoldMoney
Copyright © 2006. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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