The Decline of the Dollar?

The U.S. dollar index went up again Friday, approaching $90, as investors fled once again to the safety of the dollar.  The five year chart shows that the dollar is nearing 5 year highs.

The Euro fell below $1.20 on Friday and some are predicting that it could reach parity with the dollar in a few months.  During May, a lot of investors bought an ETF that tracks the Euro, FXE, thinking that the Euro had found bottom, only to be surprised as the Euro continued to fall.

For investors who want to bet on the dollar’s decline Power Shares offers an ETF that gains in value when the dollar’s value declines.  The ticker symbol is UDN and sells for about $24.

In the past few months the normal inverse relationship between gold and the dollar has changed.  They are now moving in the same, not opposite, directions. UUP below is a bullish ETF linked to the dollar.  GLD is a gold ETF.

What that says to me is that the world’s investors have lately been treating the US dollar as though it were gold – a very disturbing trend.  There is a limited quantity of gold while the dollar is nothing but paper promises from the U.S. government.  However, in the short term, the dollar index could break $100 if the world’s economy seems like it is starting to head into a double dip recession.

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