SPARKS TO FLY ON FRIDAY?

We're going to keep today's letter very short, simple and to the point.

Today is Friday. It's the last day of the week and sparks could really fly if investors decide to do one of two things, or indeed both.

All the signs point lower for the dollar, while all the signs point in the other direction for gold. Now, it's not as though we're expecting any major weekend news. There is no G7 meeting, no statement, nothing out of the ordinary. But Friday's reserve the tradition of marking the end of the work week and the where the price on a chart closes is very important in trend formation. 

Already gold is at a fresh high this week - that story has been repeated daily so it seems. But unlike some typical manias, it seems there is nothing to create a cease-fire between the forces driving gold higher and the dollar lower.

Simply put the dollar is losing favor day after day. Here, there is no end game. The dollar is retreating to pre-crisis levels against the euro, the Australian dollar and the Canadian dollar.

Gold is gaining due to circumstances entirely unwitnessed before. The amount of money printed by the global governments has been phenomenal and investors are challenging the regime as we know it. That's why the upside for gold in the cold light of day is anyone's guess.

Typically, even in the darkest hour of a crisis, and there has been no shortage over the last year, there seems some silver lining to the storm clouds.

This time around what should we expect? An announcement of increased gold supplies over the weekend by the world's central bankers? Hardly!

Perhaps concerted central bank dollar intervention by central banks. Apparently Asian central banks are reportedly selling their own currencies to support the dollar.

But the stance of the U.S. government hardly seems to augur intervention. The "strong-dollar" policy of yesteryear is still upon us and treasury secretary Geithner doesn't seem to have an axe to grind on the dollar's recent loss of value.

Typically investors might head into a weekend defensively - taking profits on positions that had made them money. But this weekend the long gold and short dollar trade may well accelerate as if to invite offers of solution over the weekend.

We're struggling to see what the solution is, which means that prices will continue to stretch like an elastic band beyond previous cyclical highs. That puts $1.61 for the euro/dollar equation in the firing line and that might happen very quickly if panic really takes hold.

Friday could bring some real sparks. Just you watch!

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