Much of that history includes gold. As early as 1091 BC, gold was used as money in China and both the yellow metal, and of course silk, traveled the Silk Road to points west in Egypt, India, Persia, Arabia, Byzantium and Rome.

This past Friday was a travel day for me and it looks like I missed some excitement. The decisive push below the $800 level was precipitated by persistent dollar strength, which has kept the pressure on commodity prices. However, gold has held support at 772.65 (21-Nov-07 low) thus far and has rebounded modestly as I write this report.

As stated in my long-term dollar perspective from last week, there doesn’t appear to be any particularly compelling reasons to be long the dollar. The economic outlook in America remains dire. Much has been made of the export gains that have resulted from the dollar’s steep drop over the past year. Suddenly more than half of that exchange rate advantage has disappeared. Not to mention that cratering growth elsewhere in the world means fewer buyers for US manufactured products. When exports start to contract, there’s not much else propping up US markets.

Despite firmer banking share prices, the systemic risks remain substantial. It seems like it’s been well over a month since I’ve read anything that suggests the worst of the credit crisis is behind us. In fact, there have been quite a few articles recently that suggest the crisis may only be half over.

The prospect of another year of tightening credit is likely to lead to more mortgage defaults and foreclosures. This will lead to additional pressure on home prices, which is ultimately the root of the crisis. As home values continue to slide, it will put additional pressure on the banks. There is a growing belief that we are in for additional bank failures. The vicious cycle rolls on.

As bad as the outlook for America is right now, Europe and the UK appear to be in even worse shape at this point. It is the unwinding of long euro and sterling trades that have been driving FX flows into the dollar. However, the greenback is not the safe-haven that it once was.

With growth risks now evident globally, there will be increased pressures from all quarters to devalue currencies in the hope of bolstering exports. Several weeks ago, I was sticking to my guns and saying the Fed would be the last of the major central banks to raise rates. Now I think they will be one of the first to cut rates again.

The ECB, having just raised rates, will find it difficult to cut too quickly for fear of losing credibility. However, the Eurozone economy has just contracted for the first time in the history of the union. They may well have to cut rates as well. In another excellent article in The Telegraph by Ambrose Evans-Pritchard, he refers to it as the “race to the bottom.”

Once the races begin, no currency will be a safe-haven. Only gold will serve its classic role as a preserver of wealth. Once that happens, $800 gold is going to seem like the bargain of the year.

Gold Market Movers:

Dollar surge will not stop America feeling the global crunch

The endgame nears for Fannie and Freddie