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Time for a reality check in bullion – and in the dollar
while we’re at it – since anxiety about the price action in both
seems to be rampant these days. The latter, as represented by the NYBOT
Dollar Index, exceeded a bullish trigger price of ours yesterday by 0.02
points, causing some gnashing of teeth in the Rick’s Picks chat
room. Gold and silver investments are quite popular in this forum, to put it
mildly, and signs of strength in the dollar, however faint, are usually seen
as threatening. Before we get upset about the prospect of a resurgent
greenback, however, let’s consider why it has been rallying in the
first place. Quite obviously, this has been a response to rumblings in
Europe, where Ireland and Portugal have recently re-emerged as the financial
basket-cases-of-the-month. We’ve seen this movie before, though, and
that’s probably why the U.S. dollar’s upward adjustment has
been relatively muted this time around.
 
There are other reasons as well. For even in a financial world
that has been steeping for far too long in a fatally toxic brew of delusion,
stupidity and moral blindness, and in which, each day, cosmic quantities of
Other People’s Money (OPM) are deployed in sham markets with wanton
recklessness, the flight-to-safety story was becoming a difficult sell. Some
of you may recall that the word “safety” was once used
interchangeably with “quality,” as in
“flight-to-quality,” when referring to the sandpiper-like
shifting of global liquidity into dollar assets, most significantly Treasurys. Nowadays, though, the word
“quality” is rarely used in connection with the dollar because it
would be an affront even to the village idiot’s intelligence – to
Tim Geithner’s intelligence, for all we know.
Those PIIGS Again…
Not that such considerations would
altogether discourage the OPM crowd from reflexively leaping back into
dollars whenever Fitch’s says a discouraging word or two about the
PIIGS. And leapt they have, but to what effect? In fact, the
dollar’s rally has been unimpressive so far. It did register a
bullish “impulse leg” yesterday on the daily chart (shown above),
but the process has been one of accretion. If the dollar’s current
rally were destined for greatness, we should have expected it to come
storming out of the gate – especially since the buck must be presumed
spring-loaded due to a massive carry-trade that has effectively put the
world’s financiers on the short side of the dollar.
If the rally should continue for perhaps a short while longer,
however, we would suggest that bullion bulls keep their cool by reminding
themselves of the U.S. Treasury’s need to borrow at least $800 billion
over the next six months. And if that doesn’t seem scary enough –
which is to say, bullish enough for gold and silver — consider
that it implies a $1.6 trillion annualized rate of debt expansion, all of it
funny money. Contrasted with the recent emergence of pan-European,
half-hearted austerity dictated by Germany, if not by penury itself, it is
hard to imagine what currencies, in the months to come, the U.S. dollar
would be rising against in the febrile minds of bulls.
Rick Ackerman
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Rick Ackerman is the editor of Rick’s Picks, a
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