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This morning on CNBC, Joe Kernen interviewed the man known as “Mr. Yen.” His real name is Eisuke Sakakibara. And for those not familiar with Sakakibara, he is Japan’s former deputy finance minister for international affairs.

For years Sakakibara’s comments moved global currency markets. And this morning on CNBC, “Mr. Yen” did something international bankers and former finance ministers rarely do, he told the truth…

Sakakibara said that U.S. Treasury Secretary Tim Geithner really wants a weaker U.S. Dollar.

The only question that remains, is how weak?

Today Sakakibara said he expected the dollar to continue weakening down to 85 yen, and reiterated remarks he made in September, that the market should expect intervention to defend the dollar should it fail to hold 80 yen.

And even with Sakakibara’s candor about Geithner’s overt weak dollar policy, his target for the dollar may still be optimistic.

In October, Daisuke Uno of Sumitomo Mitsui (Japan’s third largest bank), called for the dollar to drop to 50 yen by next year, and “eventually lose its role as the global reserve currency.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8

Uno’s price target for the dollar may be more in step with the expectations of China, Russia, Brazil, and India, all who called for the replacement of the U.S. Dollar as the global reserve currency at the recent G-20 meetings.

And India didn’t wait long to walk it’s talk, purchasing 200 tons of IMF gold, which would certainly seem to signal that they do not sense the dollar being near a bottom. And this morning, new reports surfaced indicating the Indian Central Bank may buy the remaining IMF gold as well.

http://economictimes.indiatimes.com/Bullion/India-open-to-buy-more-IMF-gold-Report/articleshow/5267357.cms

How Low Can The Dollar Go?

While Sakakibara and Uno have given us a wide range in which the dollar may fall against the yen, what actual fundamental metrics should gold traders be looking at in which to gauge fair value for the dollar?

For months I’ve been pounding the table on the CBO numbers, as I firmly believe that America’s debt, deficits, and unfunded liabilities are now so large, that they can never be met by ANY combination of growth and taxes, which leaves America with only two choices…

Default on the debt, or devalue the dollar.

And for central bankers, the choice is obvious - devalue the dollar.

So how far do we need to devalue the dollar?

I believe the best answer to that question comes from James Rickards of Omins Research & Analysis.

I posted this video Monday, and if you didn’t take the time watch it in it’s entirety, do yourself a favor and do so now, it’s only a little over six minutes…



Rickards’ thesis is that the U.S. will only be able to meet about half of it’s contingent liabilities and will need to devalue the dollar by 50% to meet the other half. His model has the Fed inflating away the value of the dollar at a rate of 4% per year for 17 years.

He also believes the unspoken agenda that emerged from the G-20 meeting, is the IMF is now running Fed policy and the Fed has been ordered to take the US Dollar off into the corner and to slowly kill it, ultimately allowing for the emergence of SDR’s as the new global reserve currency.

Rickards sees the IMF and the Fed desirous of gold rising at a rate of 7-8% per year against a slow and managed devaluation of the dollar. However, if the market begins to front run the Fed and begins to dump dollars, a collapse is possible and gold would of course skyrocket.

And here’s the bet…

Will the IMF and the G-20 be able to negotiate and coordinate a slow and managed devaluation of the dollar against other global currencies, without it’s members front running that policy and dumping dollars en masse?

China isn’t waiting… they’re offloading dollar reserves for natural resources and establishing non-dollar denominated trade agreements for oil.

And India isn’t waiting… they’re directly buying IMF gold.

How fast the rest of the world wakes up to the planned death of the dollar will determine how high, and how fast, gold continues to rise. At some point in time the price of gold will surely get ahead of the story, but I don’t feel we’re quite there yet.

Technically, while gold has soared to new highs, gold shares are still about 6% off their March, 2008 all time highs. If gold continues to hold this rally, the HUI Gold Bugs Index may be only days away from setting new highs. And once gold shares begin to dominate that IBD list of new 52 week highs, a new herd of technical and momentum oriented traders will enter the gold trade.

With rumors hitting the news wires today that India may buy another tranche of IMF gold, and with talks of an early 2010 Stimulus II being planned, there are still major catalysts on the horizon to send gold and gold shares significantly higher.

Here’s a chart of how I see the present trading channel for the HUI Gold Bugs Index.



While we’re starting to approach the upper band of the trading channel (which is also pointing us toward a direct re-test of the old HUI 518 high), you have to give this rally in gold a chance to pull the HUI Index right through resistance and to new all time highs.

I’ve moved up tight trailing stops to the HUI 460 level which was resistance in October, but became support here in November on this big breakout move for gold. Any penetration of 460 could see the HUI re-test major trend support at 400, and I’m not willing to give back that much ground. HUI 400 would be my target for a re-entry trade on any break of 460.

Move those stops up, but keep a loose leash, and let’s see if gold can pull the HUI through resistance.

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