Dollar Apocalypse

The long battle between gold and the US dollar ended in a gold victory. The yellow metal broke out to the upside through a month-long downtrend. If we are really lucky, gold will come back to test support from its uptrend.

Anything that is priced in US dollars – hard assets of all stripes – has the potential to outperform in the months ahead. It could be time for you to start making some serious gains. Fundamental forces are lining up that will push the dollar lower and commodities – especially precious metals – much higher.

Like I always say we are heading for a currency crisis. It will be ugly and the US Treasury is running its printing presses at warp speed. In short, Washington is debasing the US dollar and it is adding debt to the burden of every American at frightening pace. According to the Peter G. Peterson Foundation, a deficit of US$1.8 trillion this year alone is adding a debt at a clip of $3.4 million a minute, $200 million an hour or $5 billion a day.

With Uncle Sam spending money like his wallet is on fire, China, Russia and the Middle East are getting steamed and they are ready to do something about it. They are ready to dump the dollar. It is already started in China and is diversifying into euros, yen and other currencies.

At the meeting in Yekaterinburg, Russia, the BRIC nations suggested shifting their currency holdings from the dollar into the IMF’s Special Drawing Rights (SDRs). The IMF recently announced that around $2 billion of SDRs recently transferred to Russia. But Russia is still behind China, which announced its intention to purchase up to $50 billion in SDRs from the IMF. India is going to purchase SDRs too. SDRs on their own can’t function as a global reserve currency, but combined with a basket of hard assets – gold, silver, copper and oil – they could be a big step in that direction.

After a lull this summer, investor demand is picking up again. Gold holdings in 10 monitored gold-backed exchange traded funds increased by 4.871 metric tonnes in the week from September 4 to September 11. The amount of gold in ETFs globally has surged to more than 66.7 million ounces. The World Gold Council reports that only about half of 1% of total worldwide funds under management are currently invested in gold and if that were to double to 1%, there would be insufficient gold in the vaults of central banks to accommodate the increase in demand.

Gold is not the only thing investors and funds are buying. Copper, zinc, cotton, oil and other hard assets are all becoming sought after investments.