Suddenly dollars and dirhams seem best for investors
Posted on 27 November 2010 with 2 comments from readers
With the euro seemingly in big trouble and a European banking crisis imminent, and the US stock market rally finally faltering amid tepid economic growth, the dollar or dollar-equivalent currencies like the dirham suddenly are the place to keep your money.
Even gold and silver are looking perilously overbought. Everybody seems to have gotten the message about the precious metals and that has driven them ever higher. The final New Year rally might still be worth being on board for but after that expect a disappointment.
Silver falling
Silver dropped $1 yesterday, and gold has been slipping back despite the crisis in the eurozone, or perhaps because of it. For the bad news for the euro is good for the dollar and that is generally bad for precious metals.
Two factors should keep the dollar on its recovery path for at least several months. First, the eurozone crisis shows no sign of going away with Portugal and Spain in the firing line next, and talk about Belgium. But then there is Italy, France and the largest sovereign debtor of them all Germany.
Secondly, US stocks are well overdue for a correction and as that happens stocks will be liquidated into dollars, and that is automatically good for the greenback. Perhaps QE2 can slow this process but it is doubtful that it can turn back this flood tide entirely.
Gold to take a rest
These market reversals are generally the reverse of consensus. For gold and silver that does not mean that the long-term bull market is dead, merely that it could take quite a pause and reversal for up to six months. Stocks would also eventually stabilize at a lower level and the dollar’s decline resume.
But perhaps for now dollar and dollar-equivalent currencies are not such a bad safe haven. And to be fair we did say this earlier in the month and have been right so far (click here).
Next month’s edition of the ArabianMoney newsletter will take an in-depth look at precious metal investment prospects in the year ahead and costs just $99 for an annual subscription (click here to sign-up).
2 Comments posted by readers:
With the cost to insure the debt of a whole series of European countries going up almost daily, Bernanke might have to create a couple of trillion MORE dollars to drive it way down. The Chinese inflation fight could hit the Australian (and maybe even the Canadian) dollar too, if China engineers a slow down by raising interest rates. Longer term, Australia may be hurt by the vast new coal and mineral deposits being found in Mongolia. That copper, iron, gold, uranium etc., in Mongolia is a lot closer to China than Australia is. Mongolian and Chinese labor is a lot cheaper too. But with the number of folks in Asia, Australians won’t be hurting too much. Even Myanmar is creating a vast new industrial zone on the coast. They have a lot of nice undeveloped coastal real estate in Myanmar. All they need is a road.
Hopefully, the Southeast Asians won’t repeat the history of Europe during the last century.
What a stunning drop in slv! Bet that knocked out a few longs, jpm techs be rofl…