The US Dollar has broken down in the overnight futures session to test its 2009 low.
We’ve now definitively taken out the 2010 low. If we break the 2009 low (75) there’s only one line of support left at the 2008 low. After that, the US Dollar is in uncharted territory and all best are off.
As bad as the situation in the US Dollar is, the situation for US Debt is even worse. As ZeroHedge recently noted, the Bond King Bill Gross, who didn’t earn that name from being stupid, has shifted completely out of US Treasuries.
Gross and his colleagues at PIMCO no doubt have noticed that the 30-year bull market in bonds is about to end. Indeed, the long-end of the US Treasury curve, the 30-year Treasury, is dangerously close to taking outs its long-term trendline.
When this happens, the higher interest rates will come with a vengeance. This in turn will accelerate the collapse in the US economy and very likely kick off another round of debt deflation in the markets.
Many commentators believe that should this occur, Gold and other inflation hedges will be hit hard. This is partially true: given the level of leverage in the system liquidations would affect the precious metals to a degree.
However, unlike stocks, Gold and other inflation hedges are rallying due to increased demand: central banks were net buyers in 2010. Demand from China has exploded 500%. And yet Gold is largely under-owned by the vast majority of investors (in online communities this doesn’t appear to be the case as Gold bugs and others of a similar mindset tend to congregate at the same sites/ forums creating the impression that everyone owns Gold; ask your average person on the street if they own Gold and the answer is no. Ditto for Silver).
This is why I believe Gold is forming a rising bearish wedge pattern: it is predicting a potential sell off, possibly to $1,100 or even $1,000. However, we have MAJOR support at these levels which would likely stop any breakdown.
Understand, I am NOT saying that the bull market in Gold is over. What I AM saying is that if we enter another 2008-type environment, the precious metal will come under sell pressure due to liquidations. And I personally would welcome this as a MAJOR buying opportunity.
The reason for this is obvious: we are entering an inflationary death spiral. YES, we might have another round of debt deflation, but the flight from the US Dollar is already beginning worldwide.
Saudi Arabia has sent representatives to China and Russia to strengthen trade ties (an obvious move away from pricing Oil in Dollars). China and Russia have agreed to begin trading in their own currencies rather than Dollars. And in some emerging markets people don’t even want to accept Dollars in business transactions anymore.
The story here is obvious if you read between the lines: the world is starting to shift away from the US Dollar. Which is why you need to be preparing for inflation in a big way, EVEN IF we might have another round of deflation coming.