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Only one week after the US$ hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen. The change of sentiment has been sparked by last week’s US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan. Some traders are hesitant to call an end to the trend of US$ weakness, given that the currency’s rebound has been based on its reaction to a single piece of economic data, but if the US$ does continue to rise, it would mark a very significant development given the pattern of trading that has tended to characterize the currency markets since the onset of the financial crisis. This has seen the US$ benefit from haven demand when equities, and hence risk appetite, have fallen. In contrast, the US$ has lost ground when stocks and investor confidence have risen as investors abandon the relative safety of the US currency in search of higher returns elsewhere.

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Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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Every major country in the world is increasing their monetary supply, and all analysts expect inflation and a lot of it. So the US$64,000 Question is this; will there be any currency that comes out of this crisis to be considered the new base currency, like the US$ is now? The Big A is that right now nobody knows because there is no totally obvious currency, and that is why the US$ is sill doing well although it is in a long term down trend. This is happening in part because interest rates in the EU remain higher than in the USA, and higher interest rates attract investment capital, which first has to be converted to the higher interest currency, and that bids up its value vs. the dollar. Europe represents an economy about the size of the USA, so there may be some safety there. One can argue for the Swiss Franc, but you know the Swiss banks have had some problems too. So there is no clear picture emerging yet.

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The US$ rallies have proven to be temporary in here, and the downward trend is expected to become even more pronounced in 2009. Savvy Forex investors are taking advantage of the fluctuations in the currency markets; the US$, the GBP, the euro, the yen and the yuan. The US$ has rallied a bit in here, but it looks like it is just part of a long-term decline that analysts expected to continue well into the future as the U.S. Fed injects US$ 700B+ into the economy.

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How a Gold Bull Market Works

Every major gold bull market in modern history has consisted of three main stages:

1. Currency Deflation Stage
2. Investment Demand Stage
3. Mania Stage

During these three stages, gold prices typically rise in a parabolic upswing, which ultimately results in a sharp, skyrocketing price spike.

So far in today’s Gold Bull market, we’ve seen evidence of the first two stages.

Stage 1: Currency Deflation Stage, Gold prices increase because of currency devaluation. In this Bull market a dramatic drop in the value of the US$ against other world currencies has lifted Gold prices over the past 7 years. This devaluation is evident in the 42% drop of the US$ Index between the summer of 2001 and spring 2008.

Stage 2: Investment Demand Stage, Gold prices continue to grow due to increased investment demand. Attracted by the modest gains of the first stage of the Gold Bull market, investors begin to buy Gold as an investment, which further snowballs the price of Gold North, and with the introduction of the popular gold ETFs, and similar products, investment demand has had incredible strength since the beginning of this Gold Bull market, growing in terms of both tonnage and US$ demand.

Stage 3: The Mania Stage, there is no rush like a Gold Rush, and a speculative mania can kindle an inferno of popular greed. During the third stage of a Gold Bull market, mania buying will turns Gold’s parabolic upswing into a price spike that will leave investors rich in its wake.

The Gold Bugs are saying, “Make no mistake. The mania stage is coming.”

The Big Q: Why?

The Big A: Soon the US$ will collapse. It’s imminent, and when it does, the mania buying stage could skyrocket gold prices to previously unthinkable hights

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