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Has the US dollar reached its peak?

by Tim Straiton
Tuesday 26th July 2022

The reason for US dollar strength is partly due to the action of the US Federal Reserve, which moved quicker than other central banks to strangle inflation by raising interest rates. This has made investments in the US dollar more attractive in particular compared to the Euro, which has suffered partly due to the uncertain outcome of the war in Ukraine and also due to the heavy reliance of the German industry on Russian gas.

The current value of the dollar is close to a 20 year peak. Further significant rise in its value is becoming increasingly unlikely. In the long term, the large U.S. debt-to-gross domestic product ratio will put pressure on the dollar. U.S.short-term treasury rates are close to their target ranges. China has been gradually reducing its dollar holdings. Its U.S. debt holdings fell below the $1 trillion mark in May for the first time since 2010. In a nutshell, macroeconomic considerations and the current geopolitical situation will exert downward pressure on the dollar. What is likely to trigger a significant fall in the US dollar?. There are numerous possibilities including Russia turning on the flow of gas to Europe, a cease fire in Ukraine or the Fed having to ease off raising interest rates in order to support the economy.

There a a number of indications which could lead to a dollar bear market and now is probably the right time to take precautions to protect against portfolio risks before the event.

The following ETFs are in our opinion good vehicles to hedge such portfolio risks:

  • The Aberdeen Standard Physical Silver Shares ETF (SIVR). Current market price $17.73. The reward/risk profile is highly skewed toward owning silver, taking into consideration the current gold/Silver ratio, currently at 93.3/1.
  • The Aberdeen Standard Physical Gold Shares ETF (SGOL). Current market price $16.49.
  • The Aberdeen Standard Physical Platinum Shares ETF (PPLT). Current market price $81.75.

It is also worth noting that the gold to S&P 500 index ratio is close to all time lows (currently 43/1), which underlines the current favourable risk/reward situation by making an investment in precious metals at current levels.


Disclaimer

Our opinions are not a recommendation to buy or sell a security. Your decision whether or not to open a transaction should be based on your own due diligence and not on any representation we make to you.

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