How a Drop in the Dollar Can Benefit a Gold Investor

There are many economic triggers that cause gold to rise and fall. Ultimately, these triggers are inseparable. Still, for the purposes of discussion and analysis, they remain distinct. The rate imposed by the Federal Reserve, the national debt, the change in the employment rate, the rise and fall of consumer spending, and global emergencies all affect the price of gold at any given time.
 
The single most significant factor that influences the price of gold, though, is the relative strength of the dollar. With notable exceptions, the dollar and the price of gold are negatively correlated. As the dollar rises, the price of gold declines, and vice versa.
 
Since the November 8th election, the dollar spiked an aggressive 5 percent, placing it at a fourteen-year high over an index of major currencies. Once this happened, gold declined to just above $1,131.00 per ounce. As of Today, Friday December 30, 2016 the spot price of gold has moved back up to $1,158.70 per ounce.
 
The inverse correlation between gold and the U.S. dollar didn’t always hold true. From the beginning of the twentieth century through 1971, the greenback was actually pegged to the price of gold. Then in that year, President Richard Nixon decreed that gold would be allowed to float free, thus ending the automatic convertibility of the dollar to gold. The dollar now became a fiat currency.
 
Now when the dollar declines, the value of the currencies of other countries increases; and the demand for commodities also increases. Since gold is a commodity, its price too increases. Gold as a safe haven then becomes a natural invitation for an investor holding dollar-denominated investments like stocks, for instance.
 
Many professional investors feel that the dollar is currently due to turn around. Among them, Adrian Zuercher, head of asset allocation for Asia at UBS, has gone on record to say that the dollar now offers a good short opportunity. In other words, a savvy investor would be wise to speculate on the downside direction of the greenback.
 
Furthermore, according to Zuercher, President-elect Trump’s grand plans for the U.S. infrastructure could very well exacerbate this dollar turnaround:
 
“If Mr. Trump wants to spend more, he has to finance it, so fiscal deficits should become more negative. That’s historically not something positive for a currency, also not for the U.S. dollar, and I think this will also start to weigh on the currency.”
 
Shorting the dollar, while an effective play for the sharp-eyed professional investor, is not the wisest move for conservative lay investors. But they can achieve a similar benefit in their portfolios by investing in gold – especially at its current price. As the dollar falls, they have every good reason to believe the yellow metal will perform inversely to its downward course.
 
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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