The Dollar Is Toast
By Jeff Clark
October 30, 2008

What goes up must eventually crash and burn. And that's what is in store for the U.S. dollar.

For the past several weeks, the dollar has defied the laws of economy. It has rallied despite the never-ending bailout provisions of the U.S. Treasury. In the most amazing twist of irony since Mrs. Connelly, the First Lady of Texas, told President Kennedy, "You can't say Dallas doesn't love you," the dollar started to rally as soon as the Treasury announced plans to print billions and billions more of them.

Take a look at this chart...

This is beyond amazing. After breaking above resistance in early August, the U.S. dollar pushed higher into mid-September and then gave back about half the gains.

But the rally from mid-September until yesterday has been nearly straight up. Most currencies don't move 10% in a year. The U.S. dollar, though, rallied 15% in just four weeks.

Like I said... it's beyond amazing. It's parabolic. And parabolic trends always end badly.

The problem with charts that go straight up is there is no clear support zone on the way back down. If the chart continues higher, then there's no problem. But nothing goes up forever – just ask anyone who owned Internet stocks in 2000.

And on the way back down, we have to ask... At what price can buyers comfortably jump in for a low-risk trade?

The dollar has modest support around 81, but there's nothing really solid until way down at 76. That sort of a move would erase the entire parabolic gain over the past four weeks.

And it should produce a huge move higher for gold and silver.

I turned bullish on precious metals and the metal stocks a couple of weeks ago. After all, with the U.S. government and all the governments of the world printing currencies faster than ACORN prints phony voter registrations, precious metals had to rally. Of course, my timing could not have been worse. As soon as I said "buy," the dollar shot higher and the metals fell.

But I've stuck with the trade because logic is on my side. And despite all the emotion in the marketplace, logic eventually wins.

Why I'm Buying Gold Stocks Three New Reasons to Buy Gold

Yesterday, the currency markets took a giant leap in the direction of rational thought. The U.S. dollar suffered its worse one-day loss in eight years. Gold and silver both rallied.

There is no guarantee this one-day downtrend will continue. After all, logic hasn't spent a lot of time hanging around Wall Street lately. But you're more likely to find it there than in Washington D.C.

Best regards and good trading,

Jeff Clark

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