
There are
more and more signs that the trend for the US dollar in the foreseeable future
will be upward: The Federal Reserve has convinced nearly everyone that
Quantitative Easing is on the way out; bond markets are pricing in an economic
recovery; Case-Shiller is reporting that Stateside house prices are growing more strongly
than expected and US employment continues, for now, to improve (although we
have yet to see consistent over-200k monthly Non-Farm payroll hiring figures).
So how to
play the expected rise in the USD? As previously discussed, the US dollar index
falls a little short as the vehicle of choice because its components often compete with each other to
keep it from having the kind of movement traders would like. That leaves
currency pairs that involve the greenback. But there is an unfortunate tendency
here for these to behave according to their own agendas, from time to time. For
example, the Euro seems to meet an impenetrable support in the range of 1.28 to
1.30 to the USD, and there has to be some suspicion that this is because, while
monetary authorities in the Euro Zone know they have to reduce rates to provide
stimulus, they are not happy with a weakening Single Currency and will take
other measures to ensure this does not happen.
We have
been short the Aussie dollar against the US unit, but then Ms. Gillard, the
Australian Prime Minister, gets taken out by her party colleague, Mr. Rudd, and
the markets like this development enough to put our trade into reverse and stop
it out.
No, the
best way to play the strengthening US dollar in our book is to look to the
purity of gold. This is not a reference to the molecular characteristics of
this metal, but rather to its economic cleanliness. Gold does not have a Central Bank,
as such, with all of the attendant uncertainties that this entails; it does not
have a political dimension and, as no interest is paid on gold bullion
holdings, it is not subject to rate differentials. And apart from its role as a hedge against the decline of other assets, gold, as our economist friends would say, has negligible utility. Trace amounts are used in some electronic equipment and, of course, as jewelry, but it does not have the fluctuations in demand that might be seen in other precious metals, which are used in industry, such as platinum. This commodity forms part of the manufacture of catalytic converters.
In consequence of the above we are short gold against the US dollar.
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