The Weak Dollar is Good for Gold

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Investment Contrarians says there is a huge debt crisis brewing not only in Europe, but in the United States as well. Based on figures coming out of the White House the national debt in the US will hit $20 trillion by the end of the decade, or about 140 percent of the current Gross National Product. Nations that incur debt over 120 percent over GNP see their currencies debased. The best way to combat the continuing devaluation of the dollar is by investing in gold and silver.

According to Reuters, in May of 2013 the dollar fell to a two month low against the globe’s major currencies. This reinforced investor’s belief that the FED is likely to continue their over-stimulation of the economy. While inflation remains low gold prices went up on the news, because the continued printing of fiat dollars keeps alive the prospect for high inflation and a weak dollar. Gold likes the combination of a weak dollar and high inflation.

Adam Klopfenstein, a senior market strategist at Archer Financial Services Inc. says the weaker dollar is currently supporting gold spot prices. In addition, sales of gold and silver bullion coins remain strong because prices are down from their perceived worth. As the FED keeps pumping more dollars into the economy financiers believe this will erode the dollar further which will send gold back up. Yet, at $1470 per ounce gold is fast reproaching the coveted $1500 an ounce mark, which by historical standards a high value. Expect the dollar to decline and gold to keep rebounding. reinforces the idea that the Federal Reserve will keep stimulating the economy. They report that bargain hunters entered the gold market when prices began rising as a result of the lower dollar. When will the stimulus of the American economy stop? No one knows for sure. The FED has stated they will continue to buy mortgage bonds as long as the economy needs it.

This policy has however caused problems, because the record setting stock market should be in the tank, and gold should be setting records. Stimulus along with forced low interest rates is the culprit. Inflation should be hitting the roof and interest rates should be sky high given the amount of flat dollars being printed. In addition, the national debt is keeping economic expansion down. If the debt were minimized the economy would be growing at a 3 to 4 percent rate instead of its 1.5 percent rate, and job growth would be robust. Since this is not the case the dollar will keep weakening and gold may not hit records but will trend higher.

Finally, the dollar has recently weakened against the major currencies of the world. This is because in the US dollars are being pumped into the economy at a frenzied rate and interest rates are being forced low by the FED. This has caused the dollar to weaken which in turn has allowed gold to rebound. These two scenarios will continue meaning gold remains a good investment and safe haven.