Saturday, February 24, 2007

US Dollar Indexes

Another element of gold and silver bull markets is the devaluation of government fiat tokens. The more there is of something, the less valuable it is. The more US dollars there are, the less valuable they are, the less they buy, the more of them someone would demand for the same amount/weight of gold or silver, barrel of oil, quart of milk, mega watt of electricity, cubic feet of gas, pound of butter, loaf of bread, year's worth of Internet access, windshield wipers, etc. Since 1971, the year that the US government went back on, reneged on, its promise to redeem US dollars in a weight of gold, this applies to all government fiat tokens which work just like the play "money" in the board game: Monopoly.

The more realistic way to watch how the world is valuing the US dollar (which should show up in the US dollar gold price or US dollar silver price) is to watch the broad dollar index rather than the US dollar index. The broad dollar index is saying that the world is valuing the US dollar less than many who go by the US dollar index believe.

US dollar index (click on graphic to enlarge)

Weightings of the US Dollar Index:
Japan/JPY = 13.3%
Europe/EUR = 16.3%
Canada/CAD = 17%
Mexico/MXN = 10.4%
UK/GPB = 4.3%
China/CNY = 8%
Hong Kong/HKD = 2.6%
Malaysia/MYR = 2.4%
Other = 25.8%

Broad dollar index (click on graphic to enlarge)

Weightings of the Broad Dollar Index:
Euro = 18.8%
Canada = 16.43%
China = 11.35%
Japan = 10.58%
Mexico = 10.04%
UK = 5.17%
Korea = 3.86%
Tiawan = 2.87%
Hong Kong = 2.33%
Malaysia = 2.24%
Singapore = 2.12%
Brazil = 1.79%
Switzerland = 1.44%
Thailand = 1.43%
Australia = 1.25%
Sweden = 1.16%
India = 1.14%
Philippines = 1.06%
Israel = 1.00%
Indonesia = .95%
Russia = .74%
Saudia Arabia = .61%
Chile = .49%
Argentina = .44%
Colombia = .41%
Venezuela = .30%

A long long term chart (since 1971) of the broad dollar index is saying that the long long term uptrend of the US dollar has been broken to the downside:

What is interesting is that the broad dollar index topped out at just about the same time that the gold and silver bull markets were putting in long term bottoms.

Gold and silver? "Get it while you can." - Janis Joplin

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