I find it interesting (and a bit disturbing) that once again the dollar’s decline is on everyone’s radar.

“Investors at all levels, from retail investors to central banks, are really diversifying their portfolios,” Bloomberg reported this morning.

In other words, everyone from central bankers down to Mom and Pop investors are dumping dollars and buying gold and other currencies instead.

You’ll hear similar stories on CNN, CNBC, and MSN Money. Everyone is talking about gold’s record jump overnight to $1,133, silver’s leap above $18 and how the dollar fell to a 15-month low last week.

Here’s what they won’t tell you: The falling dollar isn’t really breaking news.

In fact, the dollar has been sinking for the better part of the last century (since the Federal Reserve was created in 1913 if you want to get technical).

A bit more recent: The dollar has been in a serious freefall for the past decade – dropping an astounding 37% just since 2001. And that’s INCLUDING the dollar rally that began in July 2008 and lasted until March.

The only difference now? With gold and silver soaring to new highs, the record Treasury issuance, and the Fed continuing to print dollars at an unprecedented rate, even the average American waltzing down Main Street is starting to notice the dollar’s decline.

More importantly, they’re looking for places to hide. (More on that in a moment…)…

Still a Cause for Concern on the Dollar

Now should you be concerned about all this negative dollar publicity? Absolutely.

It means that more U.S.-based investors are finally catching on that the dollar is heading for its ultimate demise. It also means that fewer countries around the world want to hold dollars in their long-term reserves.

That’s bad news for anyone who has their retirement plan, savings account, stock portfolio or other assets denominated in dollars.

Just last week, my colleague Ashish Advani told you how several countries around the world have been diversifying their holdings.

The Reserve Bank of India just bought $6.7 billion dollars worth of gold for their reserves. That was the largest open purchase of gold bullion in 30 years. To make matters even more desperate, they paid for their gold in Special Drawing Rights (SDRs), an artificial mix of the dollar, euro, yen and pound, instead of just dollars – another huge slight to the dollar.

Meanwhile, leaders from the rest of the BRIC nations have been uniting to ask for a new World Reserve Currency. They’ve been bashing the U.S. for our massive debts and our floundering currency all year. Just last week, the Chinese Premier Wen Jiabao publicly announced the dollar’s shortcomings at a news conference in Egypt….

“I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities. Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate.”

In other words, he’s calling the U.S. out for our $12 trillion in debt, sinking world reserve currency and record budget deficits that Chuck Butler told you about last week.

And all this negative publicity couldn’t have come at a worse time. The Federal Reserve has to continue to print extra cash to stimulate the entire economy. The Fed is also responsible for buying up whatever Treasuries don’t sell – that means more trips to the printing presses for more new dollars.

With All This Negative Dollar Publicity, Is
Now a Good Time to Sell Dollars?

Now for the important questions: What do you do about all this bad news for the dollar? Where can you possibly hide when everyone is dumping U.S. dollars?

Well, I can tell you a bunch of readers have been asking recently if now is the best time to start diversifying your dollar holdings.

After all, with all this negative dollar publicity, we could very well see a short-term dollar rally coming at the beginning of 2010 as the dollar becomes too oversold and traders start to take profits.

Now is such a dollar rally possible? Absolutely. Especially when everyone and their mother wants to be short the dollar, a contrarian rally could well be in the cards.

But if you’re a long-term investor, honestly it shouldn’t matter.

Long-term the dollar is still declining. In just the past decade the dollar’s long-term trend has been down, regardless of the few short-term rallies we’ve seen.

Also, in just the past decade, the U.S. dollar has lost 21% of its purchasing power. So regardless if the dollar has a nice short-term blip in the FX market, you’re still paying more for everything you buy.

Any short-term rally in the dollar is just an opportunity to buy up more gold and key foreign currencies at slightly cheaper levels.

Bottom line: Long-term the dollar will only continue its decline. Take advantage of any short-term rallies to cash out of dollars and add to your long-term “anti-dollar” holdings.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. This February 25 – 27, my colleagues and I will all be in Scottsdale, Arizona for our next FX University. The goal of this event? To give you the tools you need to get out of the dollar now. Sign up now and we’ll even give you a $300 discount off the entry fee. Get all the details here.