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When will the U.S. dollar crash?

February 25, 2011, 12:00 PM Przemysław Radomski , CFA

When do you expect the USD to crash and gold to sky-rocket? The dollar crash is talked about for years now…

It's impossible to tell. One speculative attack on the USD could begin a dramatic selloff as either party holding large amount of dollars (Japan, China, etc.) could panic and dump their reserves on the market. This would trigger even more dumping and before you know it, the financial system as we know it could cease to exist. This is not likely to happen any time soon - the powers that be still have aces up their sleeves. As a general rule, currency - and financial crises take place later than everyone expects, but when they finally do occur it happens in a fashion more rapid and more brutal than anticipated.

It's like building a house of cards - if you are very good at it, and you take your time, you can build a house that is very high, but you can't convince anyone that if you keep adding more cards, you can do it indefinitely. Why? Because most people tried it and know that it's impossible. Now, when it comes to international economics and monetary policy very few people are able to 'try it' and see the immediate effect. This time the details are more complicated, but one can look at it this way - if someone will build a house of cards 50 years now, does it still mean that this house has to go down eventually? Most likely, yes. Why? Because past experiences (history) and pure, cold logic proves this to be the case.

In our view, it is impossible to tell when the dollar will definitely crash and gold will definitely sky-rocket, but instead of trying to guess that date, we prefer to design and follow a strategy that will make our capital grow regardless of that date. We think that putting part of one's holdings into precious metals bullion, part into mining companies as a long-term investment, and using the rest to speculate in the short- and medium term is the way to go. Thanks to this approach one is protected against a serious financial turmoil, positioned in a sector that has very favorable fundamentals (long-term growth) and thanks to speculation one is able to make money along the way.

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