Market Timing the US Dollar Index and Gold (GLD,IAU,USDX): Last Stop Before Hell for the US Dollar

All aboard! Ninety five percent of Americans are riding the dollar train and are asleep. If the Nov. 2010 low of the US dollar index of 75.63 – 75.73 is taken out, the 2009 low (mini-hell) of 74.23 is next followed by purgatory, the 2008 low of 70.70- 71.31. That 2008 low is then followed by hell itself, which is a bottomless pit of dollar destruction, gold going to a zillion etc. If we even make it through the 2009 low, the danger of a full loss of confidence in the US dollar by foreign governments may arise.

Foreign governments are already on edge seeing the US dollar make new lows while dollar friendly events (crises from Egypt to Libya to Japan’s disaster) take center stage. The US dollar was always the back up band for the world EVEN during its decline. Now, the danger for the dollar is losing its SECOND rate back-up band gig!

You will need insurance for the above events. BUT If the Nov. low 2010 is not violated, you could see a big US dollar rally. If the above landmarks are violated to the downside, you may as well convert a chunk of your dollars into gold.

Could you be whipped? That means the dollar faking all the currency traders out and then reversing upward. Of course that could happen, so watch your stops on your gold trading positions. Throughout all of this many are recommending that you already have 5-20% of your total assets in gold. I’d say 5% would be OK only if you are willing to jump in aggressively at a new breakout high. If not, 10% may be better. Remember that I myself have recently pointed out that gold is not a good buy here. Read my prior posts. But if you have NO gold at all, you have no core protection if the US dollar continues south. Not smart. You may as not own any life insurance or disability insurance. Get smart. If you have none, average in slowly (core positions could be held in IAU rather than GLD because IAU charges less than GLD to hold your money in gold. GLD is somewhat more liquid than IAU in the pre-market and after hours trading periods.

NOTE: if you have not read my explanation of why the US dollar index is going down during this yen intervention, read my prior posts on this blog and on Twitter (DavidBDurandMD). Thanks.

As for stocks, we may simply be in a bounce for the SP500 Index or it could be more.  Catch up by subscribing to my free market tracker newsletter here:

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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

© 2011 David B. Durand, M.D. All rights reserved.

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