Over the past few years, one of the best assets to own in crisis was the U.S. dollar. Oh, how the mighty greenback soared.
During the onset of COVID-19 in March 2020, the Invesco DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) popped from under $26 to $29… as investors around the globe raced to cash. Demand for dollars surged.
And the U.S. Federal Reserve soon accommodated that dollar demand… by overwhelming the markets with cash. The dollar quickly lost its value, with the U.S. dollar index plunging to less than 90 in early 2021.
Fast forward to September 2022... The world was again in crisis. Dollar demand was surging as the Fed raised interest rates aggressively. The Bank of England and the British economy were on the ropes. Emerging markets were struggling. And central banks were fighting a losing battle again with the Federal Reserve.
The solution: Well, we’ve seen a dramatic uptick in Federal spending… and more accommodation from the central bank to U.S. banks. The dollar has been in a freefall since October 2022 — when a series of central bank pivots began around the globe. Now, the dollar is under stress…
Here’s the latest warning.
De-Dollarization or Dollar-Destablization?
Back in October 2022, there was chatter that the global economy could require yet another Plaza Accord. This was a callback to a period in 1985. At the time, the U.S. dollar was so strong that it created many of the same problems experienced in the global economy last year.
Nations paying U.S.-denominated debt were struggling due to the strength of the dollar against their weakening currencies. The only path was to weaken the U.S. dollar. Although the Fed has raised interest rates this year, other nations have taken similar steps to combat inflation.
Meanwhile, BRICS countries and other commodity-trading nations want to avoid the dollar. A decline in dollar-denominated trade would put further pressure on the greenback.
Societe Generale points out that the dollar’s decline over the past eight months could soon wipe out all of its gains after the pandemic. The analyst is projecting a move back to the lows of December 2020. This pushes investors into Europe, where the bloc’s currency has experienced its longest rally in nearly 20 years. Investors also turn to other currencies, like the Swiss Franc, to offset the dollar’s slide.
The other big winner is naturally gold. The yellow metal is now at a five-week high as the greenback’s slide picks up. Silver, meanwhile, pushed above $25 this week on the news as well.
Trading and Buying Silver
There are many ways to play the dollar’s expected decline. Naturally, investors turn to gold as a hedge and a way to protect the buying power of their money in these conditions. But silver acts as a similar hedge, and the metal has a variety of industrial properties that make it both a useful form of storage and production.
But I want to provide some insight to readers about the current state of the silver market. If you’re going to buy silver today… do not buy Silver Eagle Coins.
Why? Because these coins — currently trading at $36 on various gold and silver exchanges — are trading at a 50% premium to the underlying base metal. Why would you pay a 50% premium for one coin, when it has the same composition of a coin trading at a much smaller premium to your underlying silver.
In fact, if you currently own U.S. silver eagles, you could sell them today — taking the premium — and then turn around and buy additional coins that have the same composition of silver. This is a weird market for metals, and it’s time to take advantage of it. I’ll talk more about it tomorrow.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
How to Beat This Wall Street Trap
Wall Street uses this trap to MURDER unsuspecting trading portfolios…
It’s one of its favorite traps to use, especially in today’s crazy markets…
In Celeste Lindman’s 30-plus years of trading, she’s seen traders get sucked into this trap, with LOSING trades all the time…
Momentum is very green. The S&P 500 is overbought, and we’re seeing a big rally behind a weakening dollar. Naturally, things could shift next week when the Fed raises interest rates again. This week, I’ll release my bi-monthly update on the markets and expectations for the months ahead. Naturally, this has been a good month for the Tactical Wealth Investornewsletter. I’ll return with my next new pick on Aug. 4.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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