In a speech this morning at an international monetary conference in Spain, Fed Chairman Ben Bernanke took the unusual step of speaking out on the dollar saying that the central bank is “attentive” to the weak U.S. dollar and that it has contributed to an “unwelcome rise” in inflation. He went on to say that over time, Fed policy will be a key factor “ensuring that the dollar remains a strong, stable currency.”
For some reason the markets were surprised by this. I wasn’t. What else did they expect him to say? That he supports a weak dollar? Of course not.
Central bankers can talk about how they are going to control inflation, and not let it get out of hand, but their actions will be entirely different. Regardless of what Bernanke says, our own Federal Reserve wants the dollar pushed lower and as much asset inflation as possible because it’s the only way they can deal with the massive mountains of debt that exists in the U.S. — by inflating them away. And no matter what the dollar does short-term, long-term I believe the value of the dollar can slump another 30-40%.
As for gold, it plunged sharply this morning back to the $880 level on Bernanke’s comments, and is likely headed lower. Probably down to the $850 level before it stages it’s next leg up.
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At times, we do have different views, and a diversity of opinion is healthy!