Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Act Now to Invest in Booming Austrailia Before the Dollars Winter of Discontent

Stock-Markets / Austrailia Oct 10, 2007 - 12:04 PM GMT

By: Money_and_Markets

Stock-Markets Best Financial Markets Analysis Article Fading Green, Brighter Gold - Sean Brodrick writes: When I was in college, I worked on the Cog Railroad that runs up the side of Mt. Washington in New Hampshire. One of my favorite times was at the end of the season, when the surrounding slopes and valleys of the White Mountains would turn flame red, royal purple and rich gold with the change of seasons.


Scientists will tell you that the colors are always there — just hidden by the bright green chlorophyll in the trees' leaves. Come autumn, a tree prepares for the winter by sucking nutrients out of its leaves and into its trunk and roots. The leaves stop making chlorophyll, and as the green fades, the other colors come to the fore.

Right now, we're seeing a similar change happening in our wallets. Those green U.S. dollars are fading fast and other colors — not only gold, but a rich rainbow of foreign currencies — are getting their day in the sun.

In fact, look at my chart and you'll see that the long and glorious summer of the U.S. dollar has certainly passed. What's more, the transition has really picked up steam over the past 12 months, and gold has accelerated upward at the same time.

More on the yellow metal in a moment. First, I want to tell you about another area that is benefiting from this metaphorical change in seasons …

Australia's Rich Natural Resources Make It a Great Play on the Greenback's Slide

Canada's unemployment rate recently hit the lowest level in 33 years. Wages are rising twice as fast as inflation. And Canada's currency, the loonie, has already hit parity with the buck.

But as bullish as I am on Canada, I'm even more excited about Australia, which is benefiting from the same forces. Let me explain …

Both Canada and Australia are resource rich countries. And both are feeding commodities into the emerging markets of Asia and the Pacific Rim, which are growing at phenomenal rates.

China and India, with 40% of the world's population between them, are expanding their economies at double-digit rates. China, for example, uses about three times as much base metal per unit of GDP as an advanced economy.

All this demand heats up the economies of the resource-providing nations. Their central banks raise rates and their currencies strengthen as investors flock to the higher yields.

Higher rates would normally cool off an economy, but the buyers in China and India don't care — they want the raw materials anyway. So they keep buying more and the resource-based economies keep getting hotter and hotter! And yet until demand slows down, there's no reason for their economies to slow down.

Important: Australia, which ships a whopping 60% of its exports to Asia, is especially well positioned to benefit from this vicious cycle!

We're already starting to see a lot of strength Down Under:

  • Australia's dollar, the Aussie, recently hit a 23-year-high against the greenback, as prices for Australia's exports of coal and iron keep rising. (BHP Billiton is expected to win another 30% price hike for iron shipments to China in negotiations that are going on right now.)
  • Australian two-year bonds are yielding 6.58%, about 2.5 percentage points more than U.S. Treasuries of similar maturity, the widest gap in three years.
  • Australia's economy is expected to expand 4.4% this year, according to the International Monetary Fund. Compare that to expectations for 2% growth in the U.S.
  • And Australia's unemployment is at a 33-year low.

Result: The Aussie is up nearly 10% just since August, and should climb another 11% by the end of 2008, according to Toronto-Dominion Bank.

If you want to ride this trend, you could buy the Australian Dollar Trust ETF (FXA). However, I think an even better way is through the iShares MSCI Australia Index ETF (EWA). It's up 20% in the last three months compared to just 5% for the Australian currency ETF.

Now, let's talk about another investment that has been performing well, and has more room to run …

Gold Continues to Shine As The Dollar Loses Green

Gold has already had a great run, but I think it can go much higher, especially if you factor in inflation. And since the value of the U.S. dollar directly affects gold — the two are inversely correlated 92% of the time — you can't really look at gold in the long-term without adjusting for inflation.

Adjusted for inflation, gold's high of $850 in 1980 is more like $2,270 in 2007 dollars. I don't think gold will get there right away — but the target is out there, daring us to hit it.

And even that target is not factoring just how dramatically things have changed (for the worse) since 1980. The U.S. has gone from a trade surplus to a yawning trade deficit. The Treasury is printing dollars by the ton to make up the difference.

Meanwhile, the major gold miners are not finding new large deposits.  In fact, world mine production will drop 1.6% in the second half of this year to 1,284 tons, from 1,305 tons in the year-earlier period, according to analysts at GFMS.

A gold ETF, like the streetTRACKS Gold Shares (GLD), is an easy way to ride this trend. You can also consider Van Eck's Market Vectors Gold Miners ETF (GDX).

Keep in mind, other commodities will do well, too — copper, nickel, iron, steel, and especially agricultural commodities. These are all things that the booming economies in emerging markets need.

Whatever You Decide to Do, Move Fast Because Winter's Coming!

After autumn comes winter, and this may be the winter of discontent for the U.S. dollar. Chronic problems including the huge Federal debt, and the implosion of the U.S. housing sector could come home to roost, and perhaps lead to more dollar selling by foreign central banks.

If that happens, the dollar's decline could be so quick it will make your head spin!

But let's not focus on the negative. I believe the smart thing to do is use any "Indian Summer" in the U.S. dollar to get exposure to gold and foreign stocks.

And if you want the best of both words, get a stake in foreign stocks that mine gold! Those are the kind of stocks I'm putting in my Red-Hot Global Small-Caps portfolio.

Remember, seasons change but each shift brings new opportunities. Investors who have the foresight to prepare in advance stand to ride these trends for all they're worth.

Yours for trading profits,

by Sean Brodrick

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in