—U.S. Dollar breaks 2009 support, silver eyes $50, gold $1,520
Investors again woke up Monday to soaring gold and silver prices in Asia as the U.S. dollar crashed through technical support on the USDX index. Adding to last Monday’s news shock of Standard and Poor’s downgraded outlook for U.S. government debt, China’s monetary authorities issued a shock statement of their own over the Easter weekend.
News reports out of China, indicating Beijing’s appetite for U.S. Treasury debt has reached the limit, sent the dollar declining to 73.93, below its previous technically significant low of 74.227, set Nov. 25, 2009.
Gold futures touched $1,517.20 per Troy ounce during the dollar’s fall, while May silver reached a high of $49.82—just shy of the all-time high of $50.35 achieved in the first quarter of 1980.
“China’s foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March,” China’s Xinhua News Agency reported on Sunday. “Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient.”
Back-to-back dollar-negative news events aren’t likely to surprise chairman of Goldmoney’s bullion storage service, James Turk, however. The old hand of the bullion business had been making the rounds within the bullion community during the month of April, promulgating to clients and financial public of his expectations of an imminent plunge in the U.S. dollar and strong reflexive rise in gold and silver prices in response to the dollar’s woes.
“We’re closing in on those lows of 74.17. Once that level breaks, the floodgates open. Put another way, the dollar falls of the edge of the cliff,” Turk warned listeners of King World News.
April has become the month of truth for whether the U.S. dollar would regain a bid following a decline of 16.4% off the Jun. 7, 2010, high of 88.70.
The triple-whammy of a failed effort by Congress to move in a Greece-like direction to rein in government spending, a long-awaited downgrade of U.S. by Standard and Poor’s, and, now, a Beijing bombshell announcement regarding its intentions to impose its own limit on a profligate U.S. spending spree, has conspired against the dollar bulls—all of which taking place within two week in the month of April.
“The politicians unwillingness to cut spending or have any kind of discipline forced on them, the S&P credit rating, putting the U.S. government’s AAA rating on negative credit watch, cumulatively all of these things like one stone at a time or one straw on the camel’s back, eventually the camel’s back is going to break,” Turk added. “That’s why when I talk about a waterfall decline, I think we are really at that stage where this is going to go all at one time.”
Turk’s observation of the dollar’s remarkably weak bounce during the rapid spread of civil unrest and chaos in N. Africa and Middle East, the absence of the typical sell-on-the-news profit-taking out of the euro and into the dollar following the rate-hike announcement from the European Central Bank, Beijing’s move to support the euro through its participation in troubled Portuguese debt markets, and PIMCO’s boycott of the U.S. Treasury auctions, indicate a profound change in sentiment of the dollar’s premier reserve currency status among those most influential for determining its value.
Moreover, China’s most recent announcement, signaling an end to its tolerance for any additional dollar reserves held at its central bank, coincides with Beijing’s recent steps taken to pop a real estate bubble within the People’s Republic.
Turk had forecast the eventuality of bad news coming out of Beijing regarding its intent to further diversify its currency reserves, offering it as one of a number of catalysts that would trigger a dollar breakdown against a USDX basket of euros, yen, sterling, Swiss francs, Canadian dollars and Swedish krona.
“Chinese unwilling to buy U.S. debt securities can’t really forecast what that one little news item is going to be,” said Turk. “But that will break the confidence and then you are going to see that waterfall decline.”
At 07:51 EST, the USDX stands at 73.89.