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Weakening outlook for the US dollar is an excellent reason to buy gold and silver

-- Posted Monday, 21 October 2013 | | Disqus

Currency traders are now expecting the US dollar to weaken with an end to QE money printing kicked into the long grass and new Fed chairperson Janet Yellen unlikely to pick up the ball and run. A short rally in the US stock market after the debt ceiling crisis last week and end to the government shutdown may also prove dollar negative.

Traders say there are a lot of dollar sell orders in the market from foreigners. Holding a currency that is falling is a quick and sure way to lose money.

Falling dollar

Insiders note that the euro/dollar market had found equilibrium around $1.33 on September 17th when the shocker news to Ďno taperí on QE money printing came out. That sent the market into a one-month consolidation between $1.34-1.36. But the dollar had already been weakening since Larry Summers retired from the race to be the next Fed chairman.

He was the preferred candidate in the White House. Janet Yellen is the woman who once said she would vote for negative interest rates. Mr. Summers could have taken the punch bowl away from the party, Mrs. Yellen is reckoned to have several more in her cupboard.

Gold and silver prices jumped sharply at the ending of last weekís crisis. Commodities in general rise in price as the dollar falls. That is why they are known as real rather than paper assets.

The Chinese have bought record amounts of gold this year rather than buy US paper assets like treasury bonds. They canít afford to panic the market by selling their existing US bond holdings but they donít have to buy any more bonds. They are buying gold, and even US, European and Dubai real estate instead.

Major dollar crisis?

How far are we from a major dollar crisis when nobody wants to hold the greenback? Itís rested on its laurels as the world reserve currency for far too long. Markets may be about to test its fitness for this position.

If the dollar is under the cosh then you want to own its antithesis gold. Donít be fooled by the Fedís orchestrated gold take downs of the past couple of months. Thatís cosmetic stuff that wonít work when currency markets really start to move.

Silver will outperform gold to the upside as it usually does because it is in an even tighter market. Read the ArabianMoney investment newsletter (click here) for our best advice on how to invest in precious metals for maximum returns.

-- Posted Monday, 21 October 2013 | Digg This Article | Source:

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