Gold and Foreign Currencies
Owning some gold and owning foreign currencies are two ways to hedge your dollar exposure (to use "investment speak"). But the two are not the same. Let's see why.
First,, be aware that if you are a U.S. citizen and everything you own is denominated in dollars, everything you own will suffer a loss of value if - or more accurately as - the dollar loses value. Unfortunately, most Americans don't know what to do about that.
One thing to do is to own assets that are not denominated in dollars. If you have assets denominated in other currencies, when the dollar loses value, your other currencies provide some protection. That's the theory - and it holds to a great extent in practice.
You can own foreign stocks or bonds denominated in the currency of their native country. You can also own the currency itself. Owning stocks in another currency typically means buying the stock on the local exchange. This is less difficult than in the past, especially as applies to foreign bonds. As for stocks, it is more expensive and involved to make it viable for most people. That leaves owning foreign currencies.
This also used to be somewhat difficult, but it's not as difficult today. You can, for example, buy ETFs that invest directly in non-dollar currencies. There are also CDs available through banks that are denominated in other currencies. And the CDs may be FDIC insured, depending on what bank issues them.
The other thing you can do is own gold. (You can also own other precious metals like silver and platinum.) The price of gold is measured in whatever your local currency is; here in the U.S. it's measured in dollars.
While owning foreign currencies and owning gold are two ways to protect yourself from a falling dollar, they are not equivalent. The best example of this would be the Swiss Franc. Lately the Swiss Franc has increased dramatically over the U.S. dollar. In fact, it has even increased over the price of gold recently. The Swiss Franc is arguably the best of the foreign currencies out there to own. (Of course, be careful if you buy it now, since it's value has skyrocketed recently, and it may correct at some point soon.)
But even the Swiss Franc has declined relative to the price of gold over the long haul. It has only done better than gold for the last 14 months or so. That is an anomaly.
The other thing to consider is that while you can certainly protect yourself against a decline in value of your U.S. dollars by owning foreign currencies, you have to pick the right currencies. Not every foreign currency has appreciated in value relative to the dollar.
While using either gold or foreign currencies can be used to protect yourself from a declining dollar, it seems to me that the more effective way to do this would be to buy gold. Gold has increased in value not only compared to the U.S. dollar, but over all the typical foreign currencies that people buy to protect themselves from a falling dollar.
So hold the foreign currencies if you want. But if you do that and don't hold any gold, it seems like your could wind up just spinning your wheels.
First,, be aware that if you are a U.S. citizen and everything you own is denominated in dollars, everything you own will suffer a loss of value if - or more accurately as - the dollar loses value. Unfortunately, most Americans don't know what to do about that.
One thing to do is to own assets that are not denominated in dollars. If you have assets denominated in other currencies, when the dollar loses value, your other currencies provide some protection. That's the theory - and it holds to a great extent in practice.
You can own foreign stocks or bonds denominated in the currency of their native country. You can also own the currency itself. Owning stocks in another currency typically means buying the stock on the local exchange. This is less difficult than in the past, especially as applies to foreign bonds. As for stocks, it is more expensive and involved to make it viable for most people. That leaves owning foreign currencies.
This also used to be somewhat difficult, but it's not as difficult today. You can, for example, buy ETFs that invest directly in non-dollar currencies. There are also CDs available through banks that are denominated in other currencies. And the CDs may be FDIC insured, depending on what bank issues them.
The other thing you can do is own gold. (You can also own other precious metals like silver and platinum.) The price of gold is measured in whatever your local currency is; here in the U.S. it's measured in dollars.
While owning foreign currencies and owning gold are two ways to protect yourself from a falling dollar, they are not equivalent. The best example of this would be the Swiss Franc. Lately the Swiss Franc has increased dramatically over the U.S. dollar. In fact, it has even increased over the price of gold recently. The Swiss Franc is arguably the best of the foreign currencies out there to own. (Of course, be careful if you buy it now, since it's value has skyrocketed recently, and it may correct at some point soon.)
But even the Swiss Franc has declined relative to the price of gold over the long haul. It has only done better than gold for the last 14 months or so. That is an anomaly.
The other thing to consider is that while you can certainly protect yourself against a decline in value of your U.S. dollars by owning foreign currencies, you have to pick the right currencies. Not every foreign currency has appreciated in value relative to the dollar.
While using either gold or foreign currencies can be used to protect yourself from a declining dollar, it seems to me that the more effective way to do this would be to buy gold. Gold has increased in value not only compared to the U.S. dollar, but over all the typical foreign currencies that people buy to protect themselves from a falling dollar.
So hold the foreign currencies if you want. But if you do that and don't hold any gold, it seems like your could wind up just spinning your wheels.
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