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Wednesday, March 26, 2008

Dollar Weakens Again...

After showing it’s strength last week, in the last couple days the US$ weakens again. US$ Index, the benchmark of the Dollar towards other strong currencies, after declined by 1.23% two days ago, declined again by 1.25% yesterday.

As a consequence of the weakening US$, the gold price increased by almost 2.5% yesterday and further increase by 1.4 % this morning. Honestly this increase is faster that I predicted on Tuesday, because I was hoping the low gold price can hold on for a few weeks or even months so that Dinar is spread to the society with a more affordable price.

In the short term, the weakening US$ is driven more by perception rather than fundamental. The weakening US$ was triggered by the report by the Conference Board a Business Membership & Research Organization known by international business players with its product, the Consumer Confidence Index.

In its last report, out 25/3/2008; the Consumer Confident Index, a survey from 5,000 US households, showed 64.5 (from 100 in 1985). This number is a serious decline from last month, 76.4.

The low Consumer Confident Index in general is inline with the weakening purchasing power and consumption level of the people, which means a weakening economy. When the economy weakens, the people needs alternative to rescue their investment – from hereon, gold is a safe choice; so the gold price increase.

We need to understand the perceptions that influence temporary trends so we know what is really happening in the market; but in the decision making process, it would be safer if we use fundamental basis.

Because this temporary increase is driven by perception, then in the next few days if there is a trigger that reverse that perception, then gold price will decline again.

In the other hand, if the increase/decline of price is driven by fundamental reasons, then it will need a fundamental change to reverse the trend.

At least, according my own analysis – all the fundamental basis tends to drive the gold price or Dinar upwards in the long term – even though in short term it can be go up and down like what is happening in the past two weeks. Quantitative analytical results, are presented in the form of Dinar price trend in a period of one month, to forty years.

By presenting the trend, hopefully the people will be well informed about the Dinar price before deciding to invest in it.

Besides quantitative data I already present, I am preparing a more qualitative analysis that can explain more on why the Dinar price will keep going upward. In time, InsyaAllah I will present in this blog. Only Allah Most Knowledgeable, while we don know anything expect what Allah tell us.

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