Bill Baruch, president and founder of Blue Line Futures, reviews and previews the euro, Japanese yen...
Profiting in a Weak-Dollar Era
09/29/2011 1:00 pm EST
The US dollar strongly impacts traders in a variety of other markets, and Oliver Velez explains that dollar weakness is creating lucrative long-term trades in metals like gold and silver.
Even if you aren’t a currency trader, you should probably be aware of what the currency markets are doing, especially the US dollar.
Our guest today is Oliver Velez, and he’s going to talk to us about how the erosion of the US dollar impacts your trading decisions. Oliver, I know the dollar has really come down here. How has it impacted your daily trading decision making?
Well, in recent years, it’s impacted it quite a bit, and I’d like to give a tiny bit of history here. The US dollar obviously still continues to be the world reserve currency. A lot of people aren’t aware of the fact that our monetary policies in the States in particular are designed for the dollar to stay in a depressed state.
Since 1913, the dollar has lost 96% of his value. Since 2000, the dollar has lost 30% of its value. There are no plans to actually allow the dollar to have any significant hike at all.
What a depressed dollar does is benefit the elite citizens of the country, which are your multinational corporations. There are items in the news, such as General Electric (GE) pays no taxes, Exxon Mobil (XOM) pays no taxes, and things of that nature. These firms benefit from a very depressed US dollar, but it is actually the biggest tax on every single US American citizen.
A dollar today is like a melting ice cube, so what investors have had to do over the last several years is really focus on switching the dollars that we earn into things that don’t melt.
Precious metals obviously have been a hot topic as of late in the markets. We’ve come off the highs in gold and silver. I believe there are substantial price increases in the precious metals moving forward over the next several years.
I in particular think silver continues to be the most undervalued asset on earth. Our traders and I were accumulating silver in the $11 area through ETFs as well as physical silver ownership. We predicted a price rise to $45. We achieved that price objective. I believe it comes in a bit here, perhaps in the mid-20s, but I believe we will see silver over $100 an ounce.
I believe we will see gold as a result of continued erosion in the dollar—which is inflationary—I think we will see gold at over $4000 an ounce.
The precious metals arena has been a major area of focus for my trading team and I over the last several years.
NEXT: Best Ways to Trade Precious Metals|pagebreak|
All right, so as a shorter-term trader, how do I then take advantage of these long-term trends that you see coming, but also protect myself from the down move in silver?
Is it a matter of just tightening up stops and making sure my trading is shorter than ever?
I believe that the traditional buy-and-hold philosophy is not a philosophy that is going to work in today’s market environment. There does have to be some timing involved.
We believe that the $45 area for silver, as an example, was somewhat of a resistance area. Silver had at one time or another traded close to the $50 area. We believe it comes down about 50% off its high, which would put it around the $25 area, and from there, I would suggest that traders start to gradually ease into positions using ETFs if they want to use the paper form. I think that’s the easiest play on the precious metals.
The symbols that we like are iShares Silver Trust (SLV) for silver and Deutsche Bank Gold Double Long ETN (DGP) for gold. We will start to accumulate, gradually stepping in at various different prices in the mid-$20 area, looking for the next move to approach $100.
I also think that another protective measure that Americans are not used to in particular is playing the currencies. Most of the world has had to become very currency savvy. Because we have the world reserve currency, we have had the luxury of not necessarily having to be as savvy in the currency markets. Today, I believe that no longer is the case.
I believe that traders today should be aware of what the dollar is doing against the Swiss franc (CHF), as an example. The Brazilian real (BRL) is a very, very important currency today; even the Chinese yuan (RMB).
The two currencies that are considered to be backed by a precious metal system are your Canadian dollar (CAD) and your Australian dollar (AUD). Those are two very key currencies.
I believe that a very simple approach of diversifying ones assets amongst these currencies would at least offset, if not help the trader benefit from, an erosive dollar. Again, ETFs are one of the key avenues to actually take advantage of some of these currencies as well.
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