US Dollar And Gold Update: Is The Fed’s Monetary Policy Devaluing The Currency?

The Fed is trying to create stability by using very unstable assets. And other central banks around the world have gotten even more aggressive in their approach. For example, the Japanese central bank buys stock funds directly, and both Japan and Europe have gone to Negative Interest Rate policies. But this just makes takes money out of the private sector, and has proven to be more deflationary. It’s disturbing to me that they continue to double down on this approach even though it failed.

So I’m not absolving the Fed of guilt here, I’m just trying to address a misnomer that I hear all the time. Hopefully, the strong return of confidence coincides with a stronger stable economy that can handle tighter monetary policy. But this whole monetary experiment brings us into uncharted waters. The Fed has certainly pushed investors into taking on more risk than they would prefer. There are trade-offs to everything in life, so I often wonder if the Fed is trading off near term stability by putting the long term stability at risk.

I’ve studied enough financial history to know this can’t be ruled out as a possibility. The USD will not always be the world's reserve currency. I always maintain strict diversification standards. There is no way to take all the risk out of investing, but diversification (globally) helps reduce the risk of permanent loss. Which is most important for long term investors.

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Following the theme for this post, let's now take a look at Gold prices. Gold has been holding the $1850 level, and if the USD exhibits further weakness, that support level may hold.

I’ve allocated a portion of my accounts to Gold and long term US treasury bonds as a hedge for the inevitable temporary disruptions. I am looking to add to my Gold position (using the iShares Gold Trust ETF: Ticker IAU) if price gets down to the $1789 area. We’ll see.

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