US Dollar Crash: Buy Gold, Silver, Trade Forex?
Profit with Precious Metals, Currencies Rising against U.S. Dollar
Oct 12, 2009
Being a pessimist about the U.S. economy and dollar has offered the brightest returns if one chose gold, silver, foreign currencies, and foreign stocks over U.S. stocks. Gold returned 300% plus, silver produced more than a 4 fold increase, and the USDX crashed from 120+ to around 76 in October 2009- a 36.7% drop in about 10 years. These are lifestyle changing numbers.
Too Late to Trade US Dollars for Buying Gold, Silver, or Currencies?
It is not too late to invest in gold or invest in silver, and certainly not too late to learn about foreign exchange, forex for short. During the 1980's, gold rocketed about 25 fold from its' low point. Today with only a 3 fold increase, gold potentially has most of the full bull market ahead of it. Silver could explode significantly more because the ratio of gold to silver tends to lower when the end of the bull market gets close. With a ratio of roughly 60:1, gold to silver, the bull market is alive and well. A U.S. dollar crash, even a slow one will power the gold, silver, and forex currency markets.
Forex trading is often day trading. This is because forex trading comes with very stiff fees for keeping a position overnight, called TOM next fees. A better way of getting involved with forex trading is to buy currency ETF's. These ETF's allow an investor to trade USD for another currency:
- British Pound (GBP)
- Swiss Franc (CHF)
- Japanese Yen (YEN)
- Canadian Dollar (CDN)
- Australian Dollar (AUD)
- EEU Euro (EUR)
These are the major currencies for trading the USD. There are several other currencies that offer potentially greater returns than these major currencies. Here are the minor or exotic currencies for trading the USD.
- Brazilian Real (BRL)
- New Zealand Dollar (NZD)
- Singapore Dollar (SGD)
Buying ETF's representing the above foreign currency's can hedge an investment portfolio against a US dollar crash. Currency ETF's do not offer dividends, so an investor seeking cash flow might be wise to invest in foreign bond funds. A problem with these funds though is that they may own corporate debt which can fail, while a national currency is less likely to fail.
Investing in gold and silver can go through ETF's or through buying gold and silver coins. Physical purchase of gold and silver offers a unique advantage as far as safety. Gold and Silver ETF's or funds such as Central Fund of Canada can make bullion investing easy, but it is still a paper promise unlike holding gold and silver coins in the hand.
U.S. Dollar Crash Exit Strategy for Gold, Silver and Currencies
Currency crashes tend to happen quickly once nothing backs a currency in any country other than faith in the government. Faith can disappear in an instant. Currency crashes occur regularly throughout history including currency crashes in the U.S. such as the Continental during the Civil War.
If the U.S. dollar does crash, there will be a time to get out of gold, silver, and other currencies. The way an investor might decide to get out of the gold, silver or forex trade is to look at the popularity of these trades. When all the news refers to buying gold, buying silver, and the general population is trading dollars for gold, begin examining the market for escape options. More than likely gold, silver, and foreign currencies will have run up to extreme levels.
Gold's price might be $5000 plus per ounce, silver could be $150 plus per ounce, and the forex trades could have returned 3-5 times the investment. Then, the wise investor will look to sell gold, sell silver, and sell the forex for purchases in real estate, and quite possibly high yielding bonds.
This exact trade at the previous gold price peak in 1980, of trading gold for bonds, would have been the most profitable trade to make. Few made this trade and instead clung to gold as it fell relentlessly for years. With the new gold bull market, and an US dollar crash, investors will be able to play with the new rules- and win!
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