Greenback on a precipice

I had said in my June 27th post: "I believe a potential explosive 'paired trade' opportunity is developing as the quarter is coming to a close—to go long gold, silver, and miners and go short semiconductors and financials." With the dollar in a near free-fall this week, gold and mining shares have finally come to life after a miserable 2nd quarter. The dollar dropped again today and crude prices closed above $74/barrel for the first time ever to compensate for the confetti most of the world's crude is denominated in--the woeful U.S. dollar. The dollar is sitting at a very critical technical level that if broken, could trigger the next dramatic leg down for the U.S. currency. Its my belief that gold bullion has suffered over the past year mostly out of a vacuum being created as risk appetites have surged around the world essentially leaving smaller amounts of excess credit availing itself to the prudence of gold bullion. We saw a similar phenomena occur during the late 90s tech and dot-com bubbles where those markets literally sucked capital away from traditional industrials, banks and "value" stocks. With the dollar resting at a critical precipice, it seems possible that gold and silver could really catch fire. Not only does the gold price have some catching-up to do, given the incredible credit growth over the past 12-months, but a break below 80 for the Dollar Index could breed a new batch of people and institutions looking for protection from the ravages of currency debasement. The other part of my prediction, as it concerns the semiconductor group, feels on track from a fundamental view. Samsung, Tokyo Electron and Micron Technologies (MU) all issued a fresh batch of bad news this week. This is in addition to Novellus (NVLS) and LSI Logic (LSI) a couple of weeks ago. Unfortunately, with risk-seeking at such high frothy levels, I am playing that side of the trade a bit more cautiously. It might be worth watching how Intel (INTC) trades after their announcement next week, good or bad, before adding to these shorts.