I am not so sure there's a huge dollar carry trade. What happens is that worldwide because interest rates are at zero percent institutions as well as individuals borrow money and they go and speculate. The dollar carry trade is frequently misunderstood in the sense that there are big short positions in the dollars. But one shouldn't over estimate the short positions in dollars because the world is basically awash in the dollars."
There are too many dollars floating around from the American current account deficit that reached USD 800 billion annually and total international reserves in the hands of central banks now are USD 7.7 trillion. That is the dollar overhang and to some extent some people want to hedge their dollar exposure and then they sell dollars and buy foreign currencies and of course also precious metals including gold, silver, platinum, palladium.
Sunday, November 22, 2009
I should also mention some concerns (for now of short-term nature) I have about commodity prices including gold. A large number of commodities including oil, the CRB Index, and gold broke out on the upside in early October. I would regard a failure to hold above the “upside breakout points” in the period directly ahead with great caution. In the case of gold a decline below $1000 would likely lead to further more meaningful weakness (possibly down to between $800 and $900).