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How to Profit from the Falling U.S. Dollar With ETFs

Currencies / Forex Trading Nov 20, 2009 - 08:22 AM GMT

By: Ron_Rowland


Best Financial Markets Analysis ArticleThe U.S. dollar is falling like a rock! And while we could always see a short-term rally, I’m growing more and more convinced that the dollar is heading much lower against other world currencies.

Look at this chart below. In just the last eight months, the U.S. Dollar Index (DXY), which measures the strength of the dollar against a basket of major currencies, plunged more than 15 percent! This week it’s breaking down even further.

One of the main reasons this trend is likely to continue is that the people who have the power to do anything about it — namely the Federal Reserve, Congress and the Obama administration — are perfectly content with the situation. They might change their tune if enough voters demanded different policies, but right now there is no sign of anything different.

Dollar Index

Politicians are, in fact, happy to see the dollar falling because in the short run it seems to help the economy. U.S. exports become more competitive in the world market, while American businesses that generate revenue overseas get an added boost.

Unfortunately, the long-term consequences are not good at all … imported goods will cost us more, and overall inflation is bound to skyrocket.

The good news about this is that you can protect yourself from the falling dollar in ways that weren’t possible a few years ago. Exchange traded funds (ETFs) offer some great alternatives. So today I’ll give you a rundown on three ETF categories you might want to consider.

Dollar Crisis Shelter #1: Inverse Dollar ETFs

If you’re looking for a direct play on the falling dollar, it’s hard to do better than PowerShares DB US Dollar Index Bearish Fund (UDN). UDN gives you the equivalent of a short position in the index I charted for you above — a combination of the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc.

Of course, you might do even better by concentrating on only one or two very strong currencies, or by looking at some of the emerging market currencies. You can do those things with ETFs, too, as I said in my Money and Markets column on June 18. Right now a couple of my favorite currency ETFs are CurrencyShares Australian Dollar (FXA) and WisdomTree Dreyfus Brazilian Real (BZF).

Of course, speculating in individual currencies is riskier than going with a broad index — but it may be better than staying 100 percent exposed to the U.S. dollar, which is what many investors are doing.

Dollar Crisis Shelter #2: Gold and Silver

Unlike most other metals, gold has a monetary value apart from its industrial uses. People have been using gold as a store of value for thousands of years. In other words, it is used as an alternative currency. To a lesser extent, the same is true of silver.

You can use ETFs to buy gold.
You can use ETFs to buy gold.

Gold coins and jewelry can be good investments, but for liquidity and security the gold ETFs are a better bet. They’re easy to buy, they trade online just like stocks, and they give you ownership of gold bars stored in secure vaults. Back in May I wrote a column titled: Four Easy Ways To Trade Gold With ETFs. With gold now above $1,100 an ounce, you may want to take another look at that column.

Gold isn’t the only precious metal available through an ETF. iShares Silver Trust (SLV) is breaking out, too. Silver tends to be more volatile than gold, which makes it riskier, but in percentage terms the profits can be even greater.

Dollar Crisis Shelter #3: Commodity Sector ETFs

Gold isn’t the only natural resource that goes up when the dollar falls. Oil, coal, corn, you name it — all kinds of commodities are good investments when the dollar is as weak as it is now.

ETFs provide multiple avenues into the world of commodities. You can buy funds that invest directly in commodities, or you can buy ETFs that invest in the companies that produce those commodities.

Oil is another natural resource that rises as the  dollar sinks.
Oil is another natural resource that rises as the dollar sinks.

One of my favorite commodity ETFs is GreenHaven Continuous Commodity (GCC). It holds a basket of 17 equally-weighted commodities … everything from grains to metals to crude oil.

Sometimes it’s better to own the stocks of the companies that produce these materials. They often provide substantial leverage over the actual commodity prices, and sometimes you get dividends to boot. One of my favorite ETFs in this category is Market Vectors Hard Asset Producers (HAP).

Folks, it’s not often I can say that official U.S. government policy favors one investment over the other, but now is one of those times. Yes, they make noise about defending the dollar, but that’s all it is: Noise. There’s no action behind the words.

So don’t sit still and let short-sighted politicians suck the life out of every dollar you own! With the ETFs I’ve told you about today, you can protect your money and your family.

Best wishes,


P.S. I’m now on Twitter. You can follow me at for frequent updates, personal insights and observations about the world of ETFs.

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