Gold Prices Could Benefit From A Weaker Dollar

Gold Prices To Spike In the Face Of A Weakening Dollar

gold prices to soarGold bulls are having a hay day in light of the recent debt ceiling extension in the midst of an economy with weak economic growth figures, and a national debt of over $17 trillion.  A recent CNBC poll indicates that 52% of respondents anticipate gold prices will rise this week, with the remainder expecting declines or the maintaining of status quo in the gold market.  Interestingly enough, if you look at recent trends, back in 2011 when the debt ceiling was extended, gold saw a jump of 17% in a matter of 15 days.  According to Scott Carter, the chief executive officer of Lear Capital “We are now in a much more contentious climate where the stakes are higher, the debt is greater, and we’ve had more aggressive rounds of easing.  The paper is looking a little thinner in 2013, and the bulls are on the rise.”

The Dollar Is Set Up For Another Decline

With the recent turmoil of the debt ceiling debate and the government shutdown, not to mention the aftermath and expenses of the recent government shutdown, the dollar is reeling from the volatility.  To further deepen the financial mess of the U.S. the debt is now over $17 trillion and climbing.  Gold prices are primed to take off in this environment, as the dollar remains in a weakened position.  Last week, gold posted its best weekly gain in two months after the last minute debt ceiling deal was reached.

The Continuation Of QE Stands To Weaken The Dollar

The dollar also has to fight against the continuation of QE, which is slowly weakening the value of the greenback.  Due to the recent volatility and the impact it has had on the economy, a QE taper is unlikely to occur until Q2 of 2014.  The erosion of the dollar combined with the ever increasing deficit, puts gold bulls in prime position for some significant gains.

Gold Prices Can’t Stay Suppressed Indefinitely

Gold has had a particularly difficult year up until this point, after a 22% slump.  The volatility in the market has made investors shy away from the metal as a traditional “safe haven” investment.  However, nothing stays down forever, and if the ongoing political volatility and poor monetary decisions continue to impact the dollar, gold is getting primed to bounce back.  Typically gold runs inversely to the greenback.  As the dollar weakens, it can only be anticipated that gold will be the beneficiary.

According to Matt Fanning, Founder and CIO of Fanvestments LLc, “there is plenty of madness in the U.S. alone to fuel gold higher.”   For those interested in gold as a safe haven against a weakening dollar, the current low prices may be seen as an attractant, not a deterrent.  Remember, the more bears out there, the more likely the asset is headed for a turnaround.  For more information about the current state of the U.S. dollar and to learn about the case for gold as an investment, speak to a Redhawk Wealth Advisor near you today.


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