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The latest rumors and investment banks as lofty as Goldman Sachs (NYSE:GS) are spreading the word that the dollar is in the process of bouncing back and moving higher. Therefore they are telling people to sell gold and buy the dollar. Does this make any sense in the big scheme of things? Has enough changed to justify all this dollar optimism.
Let's cut to the chase here and let one of my favorite experts on this subject speak out. Puru Saxena, the founder of the Hong Kong based investment firm that manages accouts for both individuals and corporate clients, weigh in on this topic. Puru is considered one of the most knowledgeable advisors on the planet when it comes to currencies, natural resources and commodities. He's willing to think "outside the box" which means his analysis is fiercely independent and beholding to no one but his readers and clients. He is the editor of the highly-respected publication "Money Matters" which I subscribe to. Today he wrote the following concerning gold, silver and the US dollar; " At today’s level, adjusted for inflation (even using the understated inflation figures released by the Federal Reserve), gold is still roughly 65% cheaper than where it was in 1980. If you adjust the price of gold in terms of the real inflation we have witnessed over the past 27 years, the price of gold would have to rise several-fold from these levels. Now, I am not saying with any certainty that this is going to take place, but I want you to be aware of the potential should the public wake up to the inflation menace. "In the realm of precious metals, silver seems to be even more undervalued when compared to gold. Figure 1 highlights that when adjusted for inflation (even using the understated inflation figures released by the Federal Reserve), silver is still 85% below its all time-high recorded in 1980. I do not know about you, but I certainly do not classify this as a “bubble”! In the months and years ahead, I expect silver to rally hard and outperform gold. Moreover, I suspect that the ongoing consolidation will be followed by a bullish tidal wave which will catapult both metals to significantly higher levels. Puru concludes with a perspective on the US dollar and tangible assets that I certainly concur with and have written in detail about in my eBook "Protect Your Money and Profit from This Monetary Crisis" which is a timely blueprint for specific actions to take during the financial meltdown and credit crunch we are currently mired in. Here's Puru point-of view: "When the Federal Reserve embarked on its rate-cutting journey in August, it might as well have set alight a few US Dollar bills on national television. Let there be no doubt; by slashing interest-rates in the face of a sinking Dollar, the Federal Reserve has made it absolutely clear that it does not care about the health of its currency. It is more interested in creating more inflation and giving the illusion of prosperity through even higher asset-prices. Whilst this is a tragedy for Americans, it is also an opportunity if you can invest your capital in appropriate assets and currencies. "To add to the Dollar’s woes, it is estimated that approximately US$1 trillion worth of US Dollar holdings will be reallocated to other currencies over the next half decade. This development should weaken the US Dollar further, especially against the Asian and Latin American currencies. "I maintain my position that the US Dollar is in a lengthy bear-market which will see its value erode considerably against the “emerging” currencies and the currencies of the commodity-producing nations. Earlier this year, I recommended the Canadian Dollar as a good option. Back then, it was trading at 0.85 versus the US Dollar. Today, it is trading at parity versus the US Dollar and should appreciate further in the coming months. "In summary, get rid of your US Dollars by either buying tangible assets or switching to more favourable currencies in Asia, Canada, New Zealand Dollar and Australia. We are living in a highly inflationary environment where central bankers seem to be competing against each other to see who can make their currency worthless before the others. So, avoid exposure to cash and fixed income assets which will not be able to sustain the purchasing power of your hard-earned savings. In fact, I would argue that bonds are now in a secular bear-market and will decline as interest-rates rise. "If you have not done so already, allocate a large part of your total net-worth to hard, tangible assets including energy, metals, water and food." A more objective and realistic outlook is hard to find at times like these. Some short-term "relief rallies" for the dollar and a correction downward in the precious metals prices would not surprise me. Yet it is more of a "head fake", and a technical manipulation, and appears to have nothing to do with the broad, macro-economic factors that have been driving investors away from the dollar and towards the historical comfort of gold and silver. After all, we must ask ourselves, "How strong is our confidence in the full faith and credit of the U.S. Government right now?", because that is the only implied "value" that the US dollar has...for in truth...it is nothing but pretty paper. You can read more from Puru Saxena in the "Guest Contributor" section here at ChecktheMarkets.com.
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