Market Musings 02/08/20: Dollar Doldrums, Soaring Silver

2nd Aug '20 by Edmund Shing

4 comments 750 reads

US Dollar in the Doldrums

Trend 1 in July: the persistent weakness of the US dollar, against:

FX: Euro, Yen, even Sterling!
Precious metals: Gold, Silver
Cryptocurrencies: Bitcoin, Ethereum

Just check out this monthly chart of £UUP, the US dolalr ETF that tracks a basket of US dollar against euro, yen, sterling etc.

US Dollar ETF takes a dive in July

The uptrend in £PHSP physical silver over July hs been breathtaking, with silver mounting a catch-up to gold:

Silver on a tear, perhaps vulnerable to a pullback after such a meteoric ris

But note that, while gold has achieved a new all-time high after touching the $2000/oz level briefly in July, silver at $24.4/oz remains far far away from its 2011 high of clse to $50/oz.

Even with the risk of a near-term pullback, I remain enthusiastic about the long-term prospects for this less-precious metal.

Similarly, if one follows this logic, one should also be looking at silver miners. In the UK, Fresnillo (LON:FRES) and Hochschild Mining (LON:HOC) are two such silver (and gold) mining stocks.

However, in the US there are also silver miner ETFs; I am looking at £SILJ - the junior silver miners ETF as an attractive way to gain leveraged exposure to any rise in the silver price over the long-term.

SILJ Junior Silver Miner ETF has long-term potential

In the cryptocurrency space, there is a lot of excitement over "digital gold" in the form of bitcoin, while the second largest cryptocurrency, Ethereum, is rallying even harder as the US dollar falters.

Ethereum on a tear, but very volatile!

For those that like to dream, note that Ethereum is still only less than one-third of its peak 2018 level...

Bonds may be boring, but a bull market still...

While we may mre or less forget yield these days in sovereign bonds, we should not ignore the ongoing bull market in bonds, most notably in inflation-linked bonds and also in corporate bonds, as central banks including the US Federal Reserve continue to directly buy these asset classes in huge size, underpinning prices and distorting the overall financial markets.

US inflation-linked bonds had a…

Unlock with Email

Unlock with Google

Already have an account?
Login here

William K

2nd Aug '20

Thanks Edmund. For those of us with significant parts of our portfolios invested in US equities (or the dollar based FTSE 100) the fall in the value of the USD is a setback, though hopefully only a temporary one. It would seem that two key things might increase the value of the dollar: one is a rise in US interest rates and the other is a fall in the price of oil, and possibly other dollar based commodities like gold. A third possibility is the weakening of other currencies because of increased government fiscal interventions to mitigate the effect of the pandemic. Do you foresee a significant strengthening of the USD by the end of the year, or any time over the next 12 months?

Edmund Shing

Hi wilkonz,
I think that the biggest influence on the US dollar is in fact the huge deficit spending that the US is engaged in, wth potentially another stimulus package on the way. All of this spending is financed by extra debt; however, foreign investors are less keen to buy US Treasury bonds now given the bulging deficits, the political uncertainty ahead of November's election and the low yields now on offer.

For these reasons, I don't seee a big USD bounce in the next 12 months. However that does not mean a huge appreciation of the GBP against USD, as the UK has its own issues to deal with, notably Brexit and the questyion of what deal, if any, can be agreed wth the EU by the end of the year.

My solution has been simply to up my allocation to gold and silver exposure heavily, as I consider these an alternative currency. To the euro as well, despite the obvious issues that the euro continues to have.

Thanks Ed. Yes that's very much my perception of the US economy - basically devaluing its own currency to stimulate growth and possibly to help exports. I'm moving some of my portfolio to gold and silver. Prices of high grade copper and nickel are also on the rise and I'm also looking at them as alternative assets. As you suggest, I believe commodities may hold their value whilst currencies falter.

Wilbraham

Thanks Edmund. Fascinating to see the FTSE is back to 2011 levels! I know professional investment advisors are always banging on about the risks inherent in a home county bias but your chart really brings the point home. Even if you can beat the index with astute (lucky?) stock selection there's still such a headwind from a beaten up country index.

Market Musings 02/08/20: Dollar Doldrums, Soaring Silver

US Dollar in the Doldrums

Bonds may be boring, but a bull market still...

Unlock the rest of this article with a 14 day trial

About the Author

Edmund Shing

4 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...