Dollar Update

By: Sol Palha | Wed, Oct 17, 2007
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"Fear of becoming a has been keeps some people from becoming anything." ~ Eric Hoffer 1902-1983, American Author, Philosopher

The Dollar ended up trading below 78 on a closing basis and it appears our esteemed subscriber whose email we published last week might be correct in his assumptions. If so one has only one route to take and that is the route of congratulating an astute mind. Our intentions as always have not been with finding the exact bottom as that is a task best reserved for fools. If one actually is fortunate enough to predict one such bottom its more of a curse then a blessing because this person now falsely assumes that they have stumbled onto the holy grail and their life's journey is nothing but a down hill battle, as they feebly try to duplicate that same feat but repeatedly miss. One cannot predict an exact bottom simply because one is dealing with the mass mindset that for the most part is insane. So then we ask the very real question; how does anyone time madness, for madness has no distinctive nor pre defined nor pre ordained pattern. Madness is a force of spontaneity; it manifests itself randomly and for no apparent reason.

Our contention has simply been that the dollar is now in the last legs of its down ward move and it will attempt to put in a bottom formation in the not too distant future. One or several of these attempts will fail as is always the case but finally one will take hold and will serve as a rallying point to carry the dollar up much higher then most will think is humanly possible. As the dollar closed below the 78 mark it will most likely go on to put to put in another 1-3 new lows. We envision the following sequence.

In order for this sequence to come to fruition the dollar has to stay below 78; note that it closed above this mark today and thus if it can stay above this level for 21 days in a row it will invalidate the sequence below.

If the dollar is unable to stay above 78 then the next target becomes a test of the 76 mark; a test of this mark will then produce a mini rally that will carry it to back the 78 mark but once again it will fail to hold and this could lead it to test the 69.80-73.80 ranges (this is the worst case scenario so we would not place all our bets on this). If it should test these levels we are almost tempted to come out and label this as a screaming buying opportunity, however we will reserve this for latter as we would need to examine a few key facets in order to be in a position to make that claim.

Bottom line the dollar is closer to putting in a bottom then it is to being destroyed completely. History has show that when the masses and the so called experts are sure of an outcome, that outcome is always denied and one that actually causes pain is delivered to them.

Finally note the positive divergence that has just manifested itself on the above chart and when one considers that this charts spans across 21 years this development is significant indeed. As we stated earlier this will have no long term impact on the price of Gold, silver, and or other precious metals. It will actually be a very huge positive for these precious metals to rally in the face of a rising dollar for it will indicate that they are in true bull markets and have the ability to sustain themselves without the aid of a weakening dollar.

What is really going to drive the precious metals market sky high, is demand and demand is not dependent on a weak dollar only. The Asians by nature are savers and for generations they have been taught to store some of their wealth in the form of Gold. As more and more Asians enter into the middle class the demand for Gold will soar proportionately. One other factor to remember is that big mining companies are increasingly finding it more difficult to increase their reserves; they seem to be building reserves by acquiring other companies. This means that as demand continues to increase the price of Gold will rise higher as gold output is not really increasing. Thus it appears that as long as the demand for Gold remains strong as there is no reason to expect it not to, one can expect Gold to start to rally on its own legs without the aid of a so called weak dollar.

Final note; it has been stated that a ounce Gold was always able to purchase a fine tailored suit; these top suits are now ranging in price from 1800-3000 dollars; this old indicator alone suggests that the price of Gold has a lot of room to appreciate.

"Our school master should judge what his pupil has gained by testimony of his life, not his memory. Let the boy examine and sift everything he reads and take nothing on trust or authority. Then Aristotle's principles will be more principles to him then those of Epicurus or Stoics. The diversity of opinions should be laid before him. If his able he will make his choice; if not he will remain in doubt. And if he adopts the principles of Plato through his own reasoning, they will no longer be Plato's but his. The man who follows another follows nothing, finds nothing, nay, seeks nothing." ~ Michel de Montagine 1533-1592. One of the most influential writers of the French Renaissance

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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