While attending the Apex meeting, Treasury Secretary John Snow tried to revive
the “‘strong dollar policy” by “clarifying” his recent
G7 comments on exchange rates. However, while Snow’s G7 comments might have
acted as a catalyst for the dollar’s renewed weakness, they certainly were
not the underlying cause. The dollar has been and will continue falling for
fundamental reasons, self-serving political rhetoric not withstanding.

It is amazing just how quickly the media reacted to Snow’s pro-dollar comments
as if his statements would actually cause the dollar’s value to rise. These
are the very individuals who naively believe the dollar’s recent weakness is
merely the result of a new, but unspoken, “weak dollar policy.” The
dollar is not a yo-yo which the Secretary of the Treasury can simply manipulate
with public statements. The dollar’s value is determined by economic fundamentals,
capital flows, confidence and momentum, and as such it is heading for a substantial
fall which will bring down the stock and bond markets, the U.S. economy and
the American standard of living in the process. While such pro dollar rhetoric,
the essence of the “strong dollar policy,” may have resonated during
the dollar bubble of the late 1990’s, it will fall on deaf ears in the current
bear market. The real Bush administration dollar policy is to defraud America’s
creditors with phony economic statistics, overly-optimistic assumptions, and
self-serving rhetoric long enough to sell the hundreds of billions of American
IOU’s necessary to keep the bubble economy inflated long enough to get re-elected.
Precisely why Bush would want to preside during the aftermath of the bursting
of the greatest financial bubble of all time is hard to imagine.

Meantime in the real world, gold continues its march toward $400/ounce as
the dollar falls to a ten-year low against the Canadian dollar, a six-year
against the Australian and New Zealand dollars, and nears a twelve-year low
against the British pound, a seven year low against the Swiss franc, a three
year low against the Japanese yen, and an all time low against the euro. As
the technical condition of the market continues to deteriorate, look for the
dollar index, currently around 92.5, to test its long-term support of approximately
80 and the price of gold to test its long-term resistance near $500 per ounce.
I expect both tests to fail, with the dollar index plunging to new all-time
record lows, and the price of gold surging to all-time record highs.