The Dollar Index has been on a tear in recent weeks, gaining considerable ground against the euro and other currencies. Although the currency is not the primary catalyst for changes in the price of gold and other hard assets, it does have a major influence on commodities and assets that are denominated in dollars.
Some analysts have suggested that recent dollar strength has been behind some moderate weakness in gold. While that may be true, to an extent, the rally in the greenback is likely doomed and will roll over before long.
Markets are as much about perception as anything else. For example, if investors are worried about inflation, they may sell dollars and pile into hard assets. This fuels a rise in commodity prices and actually creates the very inflation that investors feared.
Rising inflation has been a major topic of discussion in recent months. Look at the price of crude oil, grains and many other commodities that have already begun to climb. How long the dollar can move higher along with asset prices is debatable, but at some point, likely sooner rather than later, something will have to give. It will almost certainly be the dollar.
During the dollar rally from 2014-2016, the currency rallied almost 30% as GDP was declining. Since 2017, however, the dollar has given up ground as GDP and inflation have been on the rise.
The U.S. not only wants a weaker dollar, but also needs a weaker dollar. A weaker greenback makes exports more competitive and makes debt payments more manageable. A weaker dollar even makes the stock market more attractive.
Make no mistake, the Fed also may not want to become more aggressive regarding rates, as it could send stock investors heading for the exits. If the central bank does not tighten monetary policy enough, inflation could move well beyond the central bank’s desired target.
Either way, the inflation trade is already taking place, and the recent rally in the dollar is likely nothing more than short-covering and misplaced bargain hunting.
Looking at the bigger picture, the dollar has depreciated consistently for decades. Despite the recent rally and any subsequent rallies that may take place, the dollar is bound to continue its declines, as fiat currencies simply have not been shown to maintain their value over time.
With inflation already taking hold, now is the ideal time to consider allocations in hard assets that may potentially provide a hedge against rising price pressures and a weaker dollar. Physical gold may be the ideal asset class for the job. Not only can the metal provide a hedge against inflation and a weaker currency, but it also has enormous upside potential.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have and can even show you how to invest in this key asset class using your IRA account.
Don’t wait for the next major decline in the dollar to erode even more of your purchasing power. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, dollar index, GDP, gold, inflation