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Precious Metals Benefit From Continued Dollar Weakness



-- Posted Thursday, 9 February 2012 | | Disqus

By: Dr. Jeffrey Lewis

 

The dramatic rise in the price of precious metals — especially silver — in January was due in some part to the weakness in the U.S. Dollar, with both gold and silver rising from their near term lows seen at the end of December 2011.

 

The inverse relationship in the valuation of the U.S. Dollar versus precious metals has continued to increase, with the U.S. Dollar approaching all-time lows against most major currencies, except against the Euro and the Pound Sterling. 

 

Fed Moves Weaken Dollar Further

 

Also weakening the Greenback recently was the decision by the Federal Reserve's monetary policymakers on the Federal Open Market Committee or FOMC to extend its expectations for currently low rates out to 2014.

 

Another factor was the U.S. central bank's historical announcement of a relatively low inflation target of 2%.  Increased speculation of additional Fed quantitative easing measures also hit the Dollar's prospects in recent trading.

 

Dollar Historically Weak Relative to Most Fiat and Hard Currencies

 

Aptly reflecting the U.S. Dollar's weakness is the fact that most major currencies, including the Japanese Yen, the Swiss Franc, and the Australian, New Zealand and Canadian Dollars are each approaching all time high points relative to the U.S. Dollar.

 

Each of these major currencies have traded to all-time high levels versus the Greenback over the past year. Furthermore, the U.S. Dollar has seen all-time lows over the past year relative to hard currencies, such as silver and gold, making the case for continued holding of precious metals versus fiat currencies.

 

Dollar Firmer Versus Euro and Sterling, but Pulls Back as Eurozone Yields Fall

 

Two notable exceptions to the overall weak Dollar picture have been the Euro and the Pound Sterling, which have both declined substantially versus the Greenback in the latter part of 2011 due to the worsening European debt crisis and various sovereign debt downgrades.

 

Nevertheless, recent declining yields on European debt have notably improved sentiment in both the Euro and Sterling, as safe haven support for the U.S. Dollar also dwindled.

 

Dr. Jeffrey Lewis

www.silver-coin-investor.com


-- Posted Thursday, 9 February 2012 | Digg This Article | Source: GoldSeek.com

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