When it comes to the direction of the US dollar over the long run, all I can shout is "Watch out below!"
There's no doubt of the general direction and the powerful trend of the US dollar. It begs a very important, very relevant question:
"If foreign investors are moving away from the dollar and into commodities, they will give the U.S. economy one additional obstacle in its struggle towards recovery. Not only must we contend with deleveraging from the consumer side, in the form of banks still refusing to lend, but now we face higher interest rates, which will affect mortgages, and higher energy prices, which restrain economic activity.
"Speaking of interest rates and mortgages, the Fed has one more tool it can use to encourage home buying. It can directly buy up long-term bonds. This would push bond prices higher, and restrain yields and interest rates, making it easier for people to service a mortgage. In fact, the Fed has been doing just that.
"However, there is a risk. If the Fed finds it must ramp up its bond purchases, it will lead to more dollars being pumped into the financial system. That, in turn, will give investors even more reason to sell them. The result would be a vicious circle [cycle].
"We hope we are wrong about this, and that the markets are actually discounting a surge in consumer demand. If so, we will be pleasantly surprised. But that's not how it looks.
"Turning to energy, we feel obliged to make some comment on the current administration's policies. So far, the government has directed a piddling amount of money towards alternative energy development, with the bulk of funding going to energy conservation.
"Now, in one sense, there's nothing wrong with saving energy. However, in the context of a worldwide economy, it carries a few problems.
"America today still considers itself to be the world, which is a fatal error. Instead, one must recognize that the U.S. is part of an integrated worldwide economy.
"If Americans buy fewer gas guzzlers, that may make U.S. cities healthier. However, conserving resources which we will need to build an alternative energy system – one that is absolutely vital for the future – is a mistake. Here's why...
"If Americans conserve oil, that will keep worldwide oil prices low. Low oil prices make it easier for developing nations like China and India to grow their economies – and raise their oil consumption. That will drive prices higher in the long run anyway, but in the short run it is a zero-sum game in which we lose and they win.
"Instead, what we need is a positive game in which everyone wins. Our nation needs to get on its horse and begin building alternative energy. Otherwise, we will soon be faced with higher taxes, in the form of higher energy and commodity prices that will make it more difficult to build the alternative energy infrastructure that we will need down the road. The development of alternative energy infrastructure and technology now (which can also be exported) will deliver far greater benefit to the entire world."
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Faber added that, “I don’t think that gold will run up right away. I never sold gold and I’m still buying gold … [because it] has been an adequate hedge against inflation … If you bought it in 1980 at the price of $850, then it hasn’t been a good hedge against inflation, but if you bought it in 1999 at $251, then it has done very well.”
Inflation? No way, Nadler says. He might as well have been responding to Faber when he said: “Where is inflation? A speck on the horizon.”
Nevertheless, the funds continue to pile into metal. Hedge funds and other large speculators increased their net-long position in New York gold futures last week, by 7.7% over the previous week, according to CFTC data.