Crisis U.S. Dollar Falls: Gold, Silver and Crude Oil Soar

Dynamic inverse relationship between the depreciating U.S. Dollar and higher commodity prices for crude, gold and silver. In 2010 and currently, the United States Dollar steadily depreciated, especially against the second largest industrial country currency in the world China. In the United States and around the world negative economic and political news influence currency traders, marketing down the value of the U.S. Dollar. The devaluation of the U.S. currency influences commodities, including gold and silver escalating higher: Hedging against inflationary cost of imports especially crude oil. Certainly, geopolitical news around the world especially in the Middle East, and supply & demand (Global economic growth around the world, expected to increase the demand for crude oil consumption, forecasted in 2011 by the U.S. Energy Department 13) concerns, soar crude oil prices. The momentum price appreciation for commodities hard to derail as inflation takes-off, referred by economist: "Genie is out of the bottle."

The United States Federal Reserve stem the growth of inflation long - term, raising short-term interest rates and pursuing other options. Currently, no signs the majority of Federal Reserve concerned higher commodity prices will slow-down our economy in the long - term (According to Federal Reserve meeting on March 15, 2011 1), considering an interest rate hike. Economists and investors waiting to hear from the Federal Reserve Open Market meeting scheduled for April 26, 2011, signal an interest rate change. However, several interest rate hikes will be necessary, ensure the U.S. Dollar has changed direction absolutely and thus commodities prices, until such time the direction of the U.S. Dollar and commodities prices continue to move steadily down and up.

Reasons why crude oil, gold and silver prices will increase and Devaluation of the U.S. Dollar shall continue:

The United States Congress likely vote to increase the U.S debt ceiling, reaction devalues our currency. The devaluation of the U.S. Dollar cause a chain reaction: Escalating higher imported crude oil prices and commodity prices. The outcome is forecasted by Keith McCullough Hedgeye CEO and Consumer News and Business Channel (CNBC) contributor, predicts future price of crude oil at $150 a barrel. 2 The world's leading economic countries including China and United States, experiencing economic recoveries from the recent recession, increases consumption of crude oil. However, crude oil supplies are limited (Saud Arabia's oil minister reported on April 24, 2011 the kingdom has reduced output by 800,000 barrels per day in March 2011. 10) and tensions in the Middle East or rumors of supply constraints, pressure the price of crude oil higher. 9

Saudi's move keep crude oil prices high by cutting production help their budget concerns. "The kingdom promised nearly $93 billion in handouts to its citizens in the wake of the wave of unrest that swept the Arab world this spring, making a sharp fall in oil prices a major risk for its budget." 10 Unfortunately, the Saudi's move to cut production, couldn't come at a worst time, as the U.S. Dollar is devalued: Costing more to import and increased consumption in the United States, from an improved economy.

According to Steve Liesman (Senior Economics Reporter CNBC) Ben Bernanke (Chairman of the Federal Reserve) and members of the reserve not likely vote to raise interest rates, curbing commodity prices. In a 1997 paper, Bernanke outlined reasons why interest's rates should increase. Currently none of these factors are present. "In the past two years, unit labor costs have fallen in five of eight quarters, including the most recent one in the fourth quarter of 2010": Unless labor costs increases, not likely the Chairman favor's an interest rate change. Also, Ben Bernanke would need confirmation commodity prices increases, observed to be permanent and "inflation expectations get out of control", considering an interest rate hike. The Federal Reserve enacted a $600 billion policy to buy back bonds ('QE2'), keeping interest rates low. This program expected to be completed by June 2011, followed by an interest rate policy change or maintain low interest rate environment. 3 If the Federal Reserve plans to raise interest rates in the future short term (my opinion): The U.S. Dollar would rally and commodity prices could fall. Afterwards, the U.S. Dollar will continue to fall and commodity prices would climb back up again. Until, more interest rates hikes take effect, stopping the U.S. Dollar from falling and thus curtail commodity prices from climbing higher. Besides, significant budget deficit cuts and improved U.S. economic news will support a strong U.S. Dollar.

Currently in 2011, China and European Central Bank raised interest rates (Fourth time since October of 2010 5), curb inflationary concerns in their countries. Interest rates increases abroad, devalues the U.S. Dollar and derails positive news that boost the U.S. Dollar higher. The U.S. Treasury for period of time concerned Chinese Government directly influences the market value of their currency which devalues the dollar traded, in the currency exchange market. 4 Recently confirmed by a top Chinese Official: The Chinese currency Yuan, manipulated to appreciate further, as the People's Bank of China have steadily raised interest rates, curb inflationary concerns. 6 Allan von Mehren, chief analyst at Danske Bank in Copenhagen expects the Chinese will raise interest rates a couple more times, stem inflationary prices. 5 Increases in Chinese interest rates unfortunately continue to be an obstacle for the U.S. Dollar to appreciate, unless Congress enacts legislation to intervene in the currency exchange rate or The Federal Reserve raises interest rates curtailing the fall in the U.S. Dollar, unlikely at least in the short - term.

Escalating the price of gold, the government of China permits citizens to have gold savings accounts (From 1950 - 2003 Chinese citizens where banned from owning gold 11). 7 Deposits made into a gold savings account are converted into grams of gold, and accounted for in a passbook. "This method of investment is considered as in paper gold." 12 Jeff Toshima, Tokyo director of the World Gold Council, in his blog for Nikkey Money said: "I was amazed to discover the number of gold saving accounts at Industrial and Commercial Bank of China has grown above 1,000,000 within a year of ICBC launching the service." Steadily from 2002 to 2009 per capita gold consumption in China increased from 0.17gm to .33 grams. "Hong Kong residents, for instance, buy nine times as much gold jewelry (by fine weight) as their mainland cousins". 8

References:

1.) Federal Reserve weighs inflation threat - http://www.cbc.ca/news/business/story/2011/04/05/federal-reserve-march-minutes.html?ref=rss

2.) Halftime: Oil May not Plateau Until $150 - http://www.cnbc.com/id/42609619

3.) Why the FED is So Reluctant to Head Off Inflation Threat - http://www.cnbc.com/id/42595125

4.) U.S. Concerned About Weak Yuan but Stops Short of Accusation - http://www.nytimes.com/2009/10/17/business/global/17yuan.html

5.) China raises rates four times since October - http://uk.reuters.com/article/2011/04/05/uk-china-economy-rates-idUKTRE7341TX20110405

6.) Yuan steady as China uses currency to help fight inflation - http://www.themalaysianinsider.com/business/article/yuan-steady-as-china-uses-currency-to-help-fight-inflation/

7.) Pro: China's Hot Inflation Drives Gold to $2200 - http://www.cnbc.com/id/42596474?__source=yahoonews&par=yahoonews

8.) Gold Shorts Beware China's Million-Strong Gold Savers - http://blogs.forbes.com/greatspeculations/2011/01/13/gold-shorts-beware-chinas-million-strong-gold-savers/

9.) Crude Oil Climbs Above $110 a Barrel in N.Y. on Libya, Middle East Unrest - http://www.bloomberg.com/news/2011-04-07/crude-oil-increases-to-a-30-month-high-after-u-s-jobless-claims-decline.html

10.) Saudis Slash Oil Output, Say Market Oversupplied - http://www.cnbc.com/id/42637280

11.) $2,500 Gold Prices: Double Market Returns as China's Gold Fever Breaks Records - http://www.coinnews.tv/2500-gold-prices-double-market-returns-as-chinas-gold-fever-breaks-records/

12.) Investing in gold via UOB Gold Savings Account - http://www.bulliongold.net/investing-in-gold-via-uob-gold-savings-account

13.) U.S. Increases 2011 Crude Oil Prices, Demand Estimates -

http://www.businessweek.com/news/2010-12-07/u-s-increases-2011-crude-oil-price-demand-estimates.html