-- Posted Tuesday, 16 December 2008 | Digg This Article | Source: GoldSeek.com

Over the past several days the dollar has gone into a severe decline, and this drop does not look like a reaction within an ongoing uptrend, as was the case in September, for as we can see on the 6-month chart it follows the development of a Head-and-Shoulders top area, a distribution pattern that took nearly 2 months to form. It looks like the dollar has broken down from an important reversal pattern. We had correctly identified the Head-and-Shoulders top back when the dollar index was high in the Right Shoulder of the pattern, when a Dollar Special update was posted on the site on 5th December, warning of a probable imminent dollar breakdown.

As we know, the dollar spike was not the result of positive fundamentals for the currency, rather it was largely the result of across-the-board forced liquidation of commodities and stocks due to deflation fears, with the tidal wave of released funds gushing into US Treasuries as a safe haven, which first necessitated the purchase of dollars. A fortuitous aspect of the panic for the US government and Fed was that the dollar spike gave them the leeway to embark on a bender of money creation to finance an orgy of bailout largesse, especially for the benefit and banks and cronies on Wall St, although clearly the auto industry does not enjoy such favored status. This has greatly exacerbated the downside danger to the dollar once the driver of Hedge Fund and other liquidation of commodities and stocks etc abates, which now appears to be happening as the market begins to perceive the hyperinflationary implications of the recent enormous money creation. Thus, once the dollar spike is seen to have ended we could witness an all-out panic out of the dollar, and market participants would do well to remember that that which rises steeply can drop even more quickly, which means that the dollar could well plunge vertically. We may be on the point of this now. In the event of the dollar plunging potential buyers and holders of US Treasuries are likely to get "cold feet" leading to a "buyers's strike" and possibly wholesale dumping of Treasuries by overseas holders. As the United States is in the unfortunate situation of being totally bankrupt, the choking off of foreign capital inflows can be expected to lead to an immediate and severe funding emergency, with the direst of consequences. Holders of US dollars and Treasuries should therefore liquidate all positions immediately, the best possibly destination for the freed funds being physical gold and silver - if you can get it. We will be looking at the ways to secure physical gold and silver on the site shortly.

Footnote: the dollar plunge of recent days is thought to be solely related to the factors described above, and not due to the President of the United States having a pair of size 10's thrown at him in Iraq.