Expectations for the future of gold prices have been rising as Wall Street loses faith in the value of the US dollar. As the Federal Reserve’s “QE2” program continues to weaken the US currency, investors who had purchased gold during this time are beginning to panic as they see their gold holdings suddenly plummeting.
The move towards “printing money” by the Fed has caused many traders to lose confidence in the future of gold prices. Although some think that the strength of the dollar and gold prices have already been set, others say the Dow may fall again before it’s all said and done. Should we wait for another “major economic collapse” before beginning to sell gold?
The weakness of the dollar has forced many companies to repurchase stock to boost profits. This has fueled the rise of the Dow Jones industrial average. Gold prices were just beginning to climb when the Federal Reserve began to print money. Expectations for a strong dollar helped maintain prices for gold.
With hopes dwindling about the strength of the dollar, will gold prices begin to reverse? As long as the dollar maintains a strong value, the current rise in gold prices will likely continue. However, if the dollar weakens or continues to slide lower, expect gold prices to reverse and begin to fall once again.
Like every other currency, the dollar must maintain a strong currency value in order to avoid a worldwide financial crisis. If the dollar weakens, or if foreign countries begin to devalue their currencies, investors who hold US Treasury Bonds will see their holdings rise as the value of their currency rises.
Even though the dollar is weaker than most currencies, it is not necessarily going to fall and collapse. Because of its strength, it can support the values of many foreign currencies and keep many nations from devaluing their currency. Investors may still continue to hold US Treasuries even if the dollar becomes significantly weaker.
In addition, because the dollar is less valuable compared to most currencies, many companies that rely on the dollar to fund their operations will continue to operate even when the dollar weakens. This is a benefit to investors. Even though the dollar’s value may become weaker than other currencies, it is a benefit to some investors.
Should gold prices reverse, investors who sold their stocks before the Fed’s QE2 program was announced may experience a double-whammy. First, the dollar will remain strong; second, the value of the dollar will go down. Because they received a return on their stocks, many investors may now be faced with losses.
On the flip side, if gold prices begin to plummet, investors who held US Treasuries may experience a windfall of profits. Although a stronger dollar is bad news for investors, a weaker dollar is good news.
In fact, some investors may continue to hold their gold and US Treasury bonds and have nothing to worry about. For others, there is no guarantee that they will earn a profit in the current market; however, many investors find that today’s low-cost options are attractive.
Don’t expect gold prices to reverse just yet. Although they may begin to move lower in the near future, they may very well reverse sometime down the road. Although, if gold prices continue to climb, it could cause serious trouble for those who have gold and US Treasury bonds.
As long as the strength of the dollar does not falter, it will continue to remain strong and have a future. If gold prices start to fall, however, the value of the dollar could continue to weaken and affect US bondholders.