The US Dollar: best of the bad alternatives

since February 14th 2012 the US $ has strenghted 3.23%

since February 14th 2012 the US $ has strenghted 3.23%

In February I wrote that 2012 might be the year of the US Dollar, primarily reaching that conclusion because the dollar was the best of a bunch of bad alternatives. Well, since I wrote that column the US Dollar has increased 3.23% as illustrated in the chart above. Of course as the US Dollar increases in strength the price of dollar based commodities such as Gold or Oil decrease. The chart below shows the performance of these dollar denominated assets, with Gold and Oil both down a little over 9%. But the US Economy is as highly leveraged as many of the European peripheral nations, so what’s the attraction to the dollar?

sharp declines in the prices of both gold & oil since February 14th

sharp declines in the prices of both gold & oil since February 14th

Safe haven status. There is a lot of fear in the markets these days and few credible alternatives to the dollar. Japan, for example, has just been downgraded and is maintaining what many analysts are calling “ultra low” interest rates of 0.1%. Meanwhile Germany, the only other nation that is perceived as safe as America for investors funds, may actually borrow at 0% for two years today!

These indeed are historic times, but don’t be fooled: the strong US Dollar won’t continue forever, and, in fact, may sharply decline as we enter the fourth quarter.

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