The U.S. Dollar has been on a tear in recent months, and is currently trading around a 12 month high. The strength seen in the currency in recent months has almost certainly been a major factor in gold’s recent lack of upside, and further gains in the greenback could keep the pressure on. The significant impact the dollar has had on the gold market is not likely to continue indefinitely, however, and once this trade reverses course the outlook for the metal could be extremely bullish.
Given the strong ascent seen in the currency in recent months, it also begs the question of just how much more upside the buck could have left in the tank. The dollar could, in fact, be approaching a significant top.
The dollar has benefited from growing inflation, rising rates and some flight to safety trade. Interest rate differentials are probably the biggest factor driving the currency higher, but recent strength may prove to be temporary. While the currency could see ongoing strength through the summer, things could start to change quickly once fall rolls around.
In September, the ECB may announce a normalization of its monetary policy. Such an announcement could have a significant impact on the euro, and the shared currency could finally begin to rally once again on a more sustainable trajectory higher. A stronger euro could weigh heavily on the dollar, and the region could see an increase in capital inflows. Although the euro could see some further weakness on fresh developments including Brexit or Italian financial woes, such weakness could prove to be short-lived.
The bottom line is that as other global central banks begin to normalize monetary policies, the dollar could come under some significant pressure.
It is also important to keep in mind the tax cuts and government spending implemented by the U.S. recently. Although these measures may be providing a boost to the economy, that boost may also fizzle out in the months ahead. The U.S. is still going to have to deal with massive debt and increasing deficits at some point. The nation’s fiscal situation could also fuel a dollar reversal at some point, and under the current circumstances it is difficult to imagine a scenario in which the dollar is able to move significantly higher from current levels.
The dollar rally over the last few months has provided the patient, long-term investor with a wonderful gift. Gold prices have been moving lower, and could now be considered a major discount. With rising inflation, an aging bull market in stocks, numerous geopolitical issues and the potential for a major dollar reversal, now may be the ideal time to consider building a significant allocation in this key asset class. It’s never been easier.
Speak with an Advantage Gold account executive today about the numerous potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to acquire this metal using your IRA account.
Don’t wait for the next major stock market collapse or for the dollar to reverse course and head south before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, dollar, ecb, gold, monetary policy, normalitzation