A story about the fading dollar and the rise of precious metals
The US dollar is a sort of monetary or currency brand, and like any other brand, it can fall out of favor. Even iconic brands can lose their ‚Äòmust-have‚Äô standing. Remember the Members Only jackets from the 1980s?‚Äù
So it is with the U.S. dollar, a brand making lows in the financial markets. It is a brand past its apex and a replacement waits in the wings. This line of thought comes from James Grant, who presented the idea of the dollar as a flagging brand at Grant‚Äôs Fall Investment Conference in Manhattan.
Grant dug up the example of the Deutsche Mark, or DM. ‚ÄúThe DM was a hallowed monetary brand, a source of stability and a symbol of Teutonic fiscal restraint. As recently as the end of 1991, the DM made up 18% of world currency reserves. It was the quintessential strong currency.” At that point, according to historian David Marsh, the DM held sway ‚Äòacross a larger area of Europe than any other German Reich in history. Today, the DM does not exist. Look at the status of the once Almighty British Pound. Not even a glimmer of its former power and influence.
Is the dollar next?‚Äù
With this backdrop, it is not hard to imagine the U.S. dollar losing its dominance. It is especially not hard to imagine when you consider the poor stewardship of the U.S. government. The government seems as intent on creating dollars as bunnies are on creating other bunnies.
Tuesday‚Äôs sudden loss of confidence in the U.S. dollar sparked a fire in about every other asset class. Gold was the most notable, soaring to a new record high of $1,043 an ounce — though you‚Äôd be hard-pressed to find an ounce of gold anywhere that cheap. The spot price climbed up to just below $1,050 early Wednesday morning.
Silver‚Äôs been off to the races this week too. Up a buck since Monday, the spot price is at about $17.40 today. In percentage terms, that‚Äôs about 6%, actually outperforming gold‚Äôs 4% rise this week. In addition the gold-to-silver ratio remains around 60, the same level as last month. Silver looked like a bargain then, and still $4 bucks below its credit crisis high, it still does today.
‚ÄúThe ‚Äòpoor man‚Äôs gold‚Äô has come under fire in recent years that it just doesn‚Äôt deserve ‚Äòprecious metal‚Äô status. 50% of the metal that‚Äôs mined every year goes into industrial uses, which leads many to think it should be considered a base metal. This week‚Äôs $1 pop absolutely shows it as a dollar hedge. I recommend that you hedge your dollar holdings with silver at your earliest convenience. The dollar‚Äôs ruling days are numbered.