Silver: Why Is It Rallying?
I know it sounds crazy…
But virtually every talking head on the planet is spelling out gloom and doom for the dollar. I say it’s just sensationalized media coverage. All designed to make sure you tune in to see what could possibly blow up tomorrow.
But to some extent, I think they’ve got a point…
The US Dollar is near all-time lows. The bottom continues to fall out of our beloved greenback. It’s lost 10% of its value over the last seven months alone! And it’s been happening while world headlines spook investors. What’s really strange is the dollar should be moving higher. Historically, the dollar gets flush when global calamity rules the airwaves.
But right now it’s not the case. And the way I see it, this may continue for a while…
So what about the dollar has changed?
It’s a logical question and you’re not alone in asking it. With so much economic data being bounced around every month, it’s hard to put it all into context. But let me try…
Take a quick look at our economy. The consumer price index (CPI) is up. Unemployment remains a major concern at around 9%. Our government keeps the money press running 24/7. And even the small improvements we’ve seen, such as retail sales growth, haven’t been able to push the economy into full gear.
To make matters worse, new home sales are down, home prices are down, and our existing home sales are mostly foreclosures and short sales. It’s all tied together in one big cycle which is keeping us mired in the mud.
Sadly, that’s just part of what’s pinning our fabled greenback to the floor…
What’s keeping investors away from the dollar is the bloated deficit we are running. President Obama’s 2011 federal budget request puts us another $1.3 trillion further in debt. And increased liquidity isn’t helping the case for a stronger dollar.
Now, I can’t argue the positive effects the $600 billion stimulus (QE2) had on the equity markets. I mean really, who doesn’t love easy money? I’d love to borrow all I can carry for less than 1% too!
And the Dow is back up to over 12,000. Companies have been able to pay less to re-finance debt. And it’s helping improve earnings. Simply put, the markets are loving the Fed’s decisions so far.
But it’s come at a cost…
The greenback is getting crushed!
All of the world unrest is enough to turn you green. You’re seeing the headlines. Japan, Libya, Saudi Arabia, Bahrain, and the European debt crisis dominate the airwaves these days. Now should be the perfect time for the dollar to run up. But it hasn’t…
You see, the mighty US Dollar may no longer be the safe haven it once was. And a shiny precious metal seems to be taking its place. It would appear silver is the new safe haven play…
In the past seven months, we’ve seen silver run up from under $20 an ounce to recent highs of $38. It’s been this high only once in the metal’s history. It happened back in the late 70’s when the Hunt brothers cornered the silver market. But no one is cornering the market right now…
In contrast, the US Dollar index has collapsed from $83 to $75 in the same time frame. Its common knowledge investors run to the dollar during global unrest. But it looks like investors have run to silver recently, not the greenback.
So how can we profit from aversion to the dollar?
You need to get into silver. And there are plenty of options to get you into the game. Let me tell you about my top choice for investing in silver…
It’s no big secret that ETFs are the hottest investment choice these days. And the clear silver ETF leader is iShares Silver Trust (SLV).
Outside of buying physical silver directly, this ETF tracks the spot price of silver the best. You see, SLV reflects the price of silver owned by the trust at that time, minus expenses. Best of all, you can get in and out of silver without physically holding it…
Again, it’s been clear for months now that the major headline news should have driven the dollar higher. And it’s done nothing but fall. Silver has filled the greenbacks void as a safe haven play.
We won’t be able to solve our financial issues here in the US overnight. It’s going to take some time to work through all of this debt. In the meantime, silver should continue to play the role of the “New Dollar”…
Category: Commodities
