Tuesday, October 13, 2009

Dollar Breaks Support ... Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The U.S. dollar fell below important support at 76.00 this morning. This is the third break of this level. The low yesterday was 76.02. So far today the trade-weighted dollar has been as low as 75.74 in the pre-market. This is another new yearly low. It will probably be the low for today because it certainly looks like some form of intervention took place to support the dollar when U.S. trading opened. Some weak chart support exists for the dollar at 74.00 and much stronger support around 72.00. The all time low is 71.50.

Market intervention in the U.S. can be seen in the trading of the precious metals as well. Gold was as high as $1068 (a new all time high) in London and then dropped around $10 shortly after trading in New York started. Silver reached a high of $18.02 in London and then dropped a whopping 40 cents after the New York open. Precious metals falling when trading in New York opens is not uncommon. It is in fact a recognized phenomenon that has been going on for decades. Academics studying the issue have concluded that the probability of this long term pattern taking place by chance is essentially zero and that only manipulation in the U.S. markets can explain what is going on. The CFTC, the U.S. regulatory body that is supposed to keep trading on the up and up, of course sees nothing, knows nothing and apparently reads nothing.

Platinum and palladium are less affected by U.S. government dollar manipulation than the monetary precious metals. They are mostly industrial metals which have extensive use in the auto industry. Palladium has been the best performer the last few days, but there is no ETF available in the U.S. to trade it (there is one that trades in London), even though one was announced last April. While the U.S. auto industry is collapsing again after the Cash for Clunkers program expired, this is not the case in China. Auto sales are up almost 84% there year over year. The rapidly growing Chinese car market is now bigger than the faltering U.S. car market. Think about that.

Meanwhile grains have been rallying nicely. Both RJA and GRU were up in the 4% range yesterday. GRU is more volatile and consists only of grains, with beaten down wheat the largest component. RJA is a basket of 20 different agricultural commodities. GRU confirmed a double bottom as a result of yesterday's trading action. Oil was trading around $74 this morning, not much different from the price in late June when we recommended selling DXO. Oil is seasonally weak in the fall and early winter when the precious metals are at their strongest. In the long term, uranium prices are connected to the price of oil, but the correlation can be very loose in the short and intermediate term. Dennison Mines (DNN) had some peculiar price movement Monday with a sharp rise at the close that appeared on the daily charts, but not the intraday charts until this morning. Trading volume was heavy yesterday. This definitely bears watching.

NEXT: Dollar Breaks Down; Nova Gold Breaks Out

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:

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