Gold a Better Bet Against the US Dollar than the Euro

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The euro traded Friday at a new all-time high…US$1.4966. Yes, we’re about to hit another milestone there too. Here at The Daily Reckoning we predicted that the dollar would fall to US$1.50/euro. That was when the dollar was still trading at less than US$1.30. Now, it looks like our target could be hit today or tomorrow. (Is it too late to move money into euros? More below…)

Is it time to buy euros? A quick answer: we don’t know. The rise of the euro was a cinch…from 88 cents to US$1.50. Now, it’s not such a cinch. The euro is a paper currency too. The ‘esperanto currency,’ we called it when it first came out.

We know who backs the US dollar – that’s why we mistrust it! But who stands behind the euro? And how long will the Europeans accept a rising currency? A strong euro makes it hard for them to export to the United States. And while the European Central Bank is less concerned with full employment than its US counterpart, Brussels has windbag politicians too – just like Washington.

What’s more, there are powerful, natural mechanisms that tend to keep currencies from diverging too much, one from another. How much higher will the euro go? We don’t know. But it’s no sure thing. As a hedge against the dollar, gold is probably a better bet.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. Any one thinking of jumping into Euros now should ask themselves why they want to do it. Perhaps they want more paper? Nothing lasts forever (except gold). One day soon the Euro will start to decline vs. the dollar, or at best will begin to reach a top and yo-yo. Any new investors-cum-speculators will find few gains and much danger.

    One day soon the unexpected will happen too – it always does – and the US will announce a unilateral withdrawal from Iraq, a massive tax break or interest rates will begin to soar a la Paul Volcker. Gold may be knocked down $200/oz. in days, but will – MUST -bounce back. Gold’s fundamental reasons for rising vs. paper are not going to go away anytime soon. Gold doesn’t only rise because speculators are playing with it. Euros do; gold floats but paper sinks. The buying power of all fiat currencies is continually dropping. Euroland, no more a great economic success story than the US, has not progressed so much as to cause the currency to suddenly become a highly sought-after store of value, as is gold. As the book says, gold will have more of a future than paper…

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