The U.S. Dollar Is In Trouble

“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

This quote comes from a Bloomberg article last week which reported that China and Russia will bypass the U.S. dollar and engage in trade with each other using yuan and rubles.  This could start freely occurring sometime this month.

In the words of one analyst: “Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency...” Here's the link to the article:  Dollar R.I.P?

Here's a chart of the U.S. Dollar thru today.  It does not look good:

(click on chart to enlarge)

This bearish chart is reinforced by the poor fundamentals supporting the dollar.  The latest of which is an arguably de facto failure of last Thursday's 30-yr Treasury bond auction.  Although this factoid received very little media commentary, the Primary Dealers (Wall Street banks) were forced to buy 62% of the long bond auction last week.  In and of itself, this means that the traditional buyers of long-dated Treasury bonds - the Japanese, foreign Central Banks and institutional asset/liability fund managers - were reluctant to make a long term bet on the dollar.

The weak dollar may be supporting the surprising strength in the precious metals market, especially among big foreign buyers, who are vacuuming up physical gold and silver right now.  In one of his daily "quickie" reports which can be accessed in the Midas report at http://www.lemetropolecafe.com/, "JB" reports:  "India is booming and the “wealth effect” for the world's largest gold buyer cannot be ignored."  In addition, per JB, Standard Bank of London reports:

Demand for physical gold remains robust out of Asia and India ahead of Q4:10. Our Standard Bank Physical Gold Flow Index remains in positive territory indicating that buying in the physical market continues to outpace selling, even at this near-record high gold price.

So there you have it.  Many newsletters writers issued bearish short term trading calls this past weekend on gold based on the technical patterns of the charts.  Absurdly, there are still a lot of lemmings who live and die by their favorite newsletter writer.  Newsletter peddlers are usually wrong, by the way.  It is with dry humor that JB's report today is titled:  "NY Chart anxiety = Happy Indians."

My best advice would be to start unloading your bond portfolio holdings before the dollar really starts to flush down the toilet and use the proceeds to buy a lot more physical gold and silver.  I would like to point out that premiums for 1 oz. silver eagles on Ebay are back over $3/oz.  This is indicative of strong retail demand and waning supply.