G20 will push the trend

12/11/2010 by Philinje.

It seems we may have finally seen the turn up in the dollar. Given the latest upside surprise in Non-Farm Payrolls, there will likely be lots of debate about QE2 at the G20 mneeting this weekend. That in itself could put enough fuel in the dollar’s turn to confirm it.

But the dollar seems pretty tired and a new uptrend might not get much past 80 on the dollar index. We’re at 78 already. 80 would be the equivalent of a dead cat bounce. However, if markets start crashing, then maybe the dollar would cruise higher.

At this point it’s hard to imagine a major decline. There is so much inflation baked into the cake that assets will head up as the dollar heads down. Pretty much everyone sees that now. Well, there may still be some deflationists out there, but they are a dying breed, thanks to Bernanke and QE2.

Near term, we could finally get a small dollar rally and a decent low in gold, but not that low. It might not even drop much past $1300. Sure, there could be a black swan event, like a major default by a bank or country, which causes panic into the dollar. But it’s becoming all too clear that the dollar is not a safe haven, and US Treasuries are registering that change in opinion loud and clear by dropping as QE2 was confirmed.

So as currencies compete to devalue, gold remains the only safe haven. That’s why it’s climbing upward so relentlessly. It’s also far from a mania-drive top. But it was way overdue for a breather. Let’s see how much of one we get.

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