On February 25th I posted the following:
Back on the 18th of January I blogged about USDX support at 79 being broken to the downside. We're now dancing with the lower support area of 77. Below this there may be support at 76 and then 74, but the US Dollar is looking very weak. I would not be surprised to see a break below 74 over the next couple of months which would support higher Gold and Silver prices early in the year (as they have an inverse relationship).Shortly after this post we saw the US Dollar Index fall below support at 77, it then broke support at 76 and has been dancing between 74 and 76 for a few weeks. In my opinion a break below the 74 support level is likely in the short term (previously made a low around this area in late 2009):
Below 74 and we're looking to retest the 2008 (all time) lows at around 71.
If the US Dollar Index were to fall below 71 this could cause a panic out of the Dollar leading to a "Dollar crisis". The panic is also likely to see Gold and Silver rise sharply (priced in USD) given their inverse relationship.
If the US Dollar were to fall to new all time lows it would put further pressure on the Fed to stop or reduce the QE program. I have previously discussed a possible scenario that could occur if QE were to be halted this year. In my opinion it wouldn't be pretty.
I think any panic out of the USD this year would be short lived, much like the Euro sell off (in early 2010) we would likely see a sharp dip lower and then a strong bounce out of the lows.
Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.