The dollar is on course to lose its reserve currency status. This is not something that will happen overnight, it will be a process, but at some point there is likely to be a ‘sea change’ in perception, as the world grasps that this is what is happening, which will trigger a cascade of selling leading to its collapse, whereupon gold and silver will rocket higher.
A big reason for the dollar finding support in recent years and doing relatively well versus its peers has been the perception that the US is the last and best ‘safehaven’ in a world beset with instability and terrorism etc , but that perception is changing as US society starts to polarize in a dangerous manner. In addition, the continued provocations and threats by the US towards China and Russia has driven them into making preparations to ditch using the dollar, and these preparations are well advanced, and have included buying huge quantities of gold. Thus the dollar is looking increasingly vulnerable.
On the long-term 20-year chart for the dollar index we can see that it is still at a fairly high level after its gains during 2014 and 2015, but appears to be marking out a ‘Broadening Top’ pattern. On this chart we can also see that if it proceeds to fall hard soon, it won’t be the 1st time – it suffered a brutal decline between the start of 2002 and early 2008 – and that was before it was threatened with the loss of its reserve currency status, so the looming bearmarket could clearly be much, much worse.
This post was published at Clive Maund on August 27, 2017.