“Is the U.S. Dollar Toast?”

When Gold Will Become a Bargain Again…
“How far would you say gold will go down to, or rather what price would you get in at?” -- P.O.

Honestly, I’m not a market timer. I truly believe that if you want to buy something, buy it! As far as gold goes, sure it could go to US$800, US$700 or less. But it could just as easily go higher from here, and, if fundamentals are in play. And honestly, I believe it will go higher. Therefore, buying on the dips below US$900 seems ideal for me.

“If the U.S. lost its reserve status, what would that do to gold?”

I believe it would push gold up to US$1,200-US$1,500 at least.

New Reserve Currency? Yes, It Could Happen
“What exactly does this announcement by the Chinese Central Bank Officials to create a "supranational reserve currency" headed by IMF mean?” – A.M.

The IMF issues what’s called “Special Drawing Rights” (SDR’s) which is a basket of currencies made up of dollars, pounds, yen, and euros. The Chinese would like to see the dollar replaced as the World’s Reserve Currency, and SDR’s used instead. This, in my opinion will be a baby step toward the Chinese renminbi becoming the next reserve currency of the world.

“Does this China story mean that the U.S. dollar is toast? “Suppose this becomes a certainty, will all the world's commodities no longer be priced in U.S. Dollars? Will America give up this right readily? – A.M.

Well, eventually, I see the dollar losing its status as the world’s reserve currency. But I don’t think it will collapse. Instead I see the dollar losing a large chuck of your purchasing power.

If the dollar is replaced, then yes, commodities would be priced in another currency. I guess the U.S. could try to hold onto its right to right to price everything in dollars, but right now, the U.S. is building up these huge deficits will come back to haunt the U.S. as they won’t have a bargaining chip, other than military.

The Skinny on the Chilean Peso, Iraqi Dinar, and Norwegian Kroner

“Of all the currencies in the world right now for the year 2009, it looks like the Chilean Peso is the strongest against the dollar. Why? Thank you.” – K.F.

I’m sorry, but I don’t follow the Chilean Peso because it’s a very small and illiquid currency. But honestly, that is probably doing the pesos some favors right now.

“What do you think of the New Iraqi Dinar??” – S.J.

Unfortunately, not much. It’s totally illiquid. I’m aware of people that have bought it, but can’t find anyone to buy it back from them. Therefore I wouldn’t touch it with your 10 foot pole! And… who’s to say that the dinar is the actual currency in Iraq after the U.S. leaves?

“I disagree with your view of the Norwegian Krona. I am an engineer not a currency expert but, in my view Norway's dependence on North Sea oil is not a plus. I say this on the assumption that statements by BP claiming that its North Sea extraction is uneconomic at the current price of oil and about closing down its North Sea operations, may also apply to Norway. All the best for an early recovery from the big "C." Attitude plays a big part and I am sure you have the right one.” – G.C.

I appreciate your position, but I’m looking more at Norway’s positive balance of payments, and cash reserves that most countries in the world would be jealous of. So I don’t see why you don’t feel Norway is in a positive position.

Dollar Alternatives & Norwegian Bonds
“What alternatives (apart from the NOK & Brazilian Real-I already hold both) should we Americans hold?” – A.M/

I’m not allowed to give you specific investment recommendations… However, I would look to the “Commodity Currencies” Australia, New Zealand, South Africa and Canada.

My Take on the Euro-Dollar Tug-Of-War
“Regarding the trend of euro/dollar which skyrocketed after Fed decision, and given the bad economic situation of the eurozone, do you think this trend sustainable and to what level near to medium term?” - J.B.

It’s simply a case of the U.S.’s car being uglier than the euro car! And yes, once fundamentals return to the markets, and the dollar negativity sets in once again, this will carry on the weak dollar trend that was kicked into the backseat last July…

“Is this the end of the strong dollar policy of Larry Summers?

Oh, the U.S. will continue to say the believe in a strong dollar policy, but doing so with their fingers crossed behind their backs, as they know all too well that the only way to pay back our debts is to debase the currency, and then pay back the debts with cheaper dollars…