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April 21, 2011

US Weak dollar policies working as Gold, Other Currencies and commodities reach new highs

The real broad dollar index measures the US dollar against its value in 1973 The index is at a 40 year low.

The gold prices hit another record at $1,509.60 and silver prices were at $45.76 an ounce pushing the gold/silver ratio down to the 32 level. David Morgan, founder of Silver-Investor.com, thinks the ratio could hit 16 while Eric Sprott of Sprott Asset Management is on record as saying the ratio could hit single digits. Silver would then be over $100 an ounce.

A dollar plumbing three-year lows is hitting Americans squarely in the gas tank, and one economist thinks it could drive prices as high as $6 a gallon or more by summertime under the right conditions.

Hastings sees gasoline having "no problem" getting to $6.50 a gallon over the summer after increased demand and storm disruptions come into play. Others, though, say gasoline prices haven't needed any help so far from other events—the moves by the Fed to keep interest rates in negative real terms are enough to boost energy by themselves.

The assertion from Hastings that the weak dollar is responsible for one-third of the total cost for a gallon of gas "sounds very low," Pento says, adding that a barrel of oil should be closer to the $65 to $70 range if priced properly. "That's exactly where it would be if we weren't crumbling our currency," he says.



The Euro hit a 16 month high over $1.46

The Chinese yuan is stronger than 6.5 to the US dollar

My projections of China's currency doubling in value relative to the US dollar is a prediction that the US will take a longer time to get its deficits and debt under control and to shift away from a weak dollar policy. It is also a prediction that China will not need to have its currency as weak as the US dollar and that China will need to increase the currency to combat inflation in China.

Ting Lu, Economist of Merrill Lynch of Hong Kong, has predicted that China will have a 6.3 exchange rate by the end of 2011 and China’s GDP may surpass the U.S. by as early as 2020. In this decade, China could build the world’s most extensive and fastest public transportation system, climb up the value chain and see another 15-20% of its population settle in cities. Over time, a rise in the country’s currency will help to ease inflationary pressure, he said. Lu expects year-on-year increases in China’s consumer price index will peak at 5.5-6.0% in June.

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