The Weak Dollar Windfall Trader

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Kathryn Payne
6 years ago
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1 The Weak Dollar Windfall Trader

2 Weak Dollar Windfall: Profit from a Dollar Reversal By Jeff D. Opdyke WELCOME to the beginning of the end of dollar strength. Although the Federal Reserve and Chair Janet Yellen gave into investors demand to do something and raised interest rates in December, the fact remains that interest rates cannot rise very high or very soon. In fact, she s asked banks to stress-test for negative interest rates. America s slow recovery has been dismal. While we ve added new jobs, the majority continue to be low-paying, part-time jobs that keep too many Americans living paycheck to paycheck. This is a flashing marquee that our economy is not the shining ball of strength that media hype has played up in recent months. It s simple: The dollar is doomed. As a fiat currency, our dollar is only as strong as the finances that underlie it. And the only point of reference I need to share to show you how rotten our underlying finances are is this: America s on- and off-balance sheet debt is now approaching 550% of GDP. And the world panicked because Greece exceeded 100%? Additionally, the greenback s position as a world reserve currency is at risk. Before the end of the year, the International Monetary Fund (IMF) proposes to add China s yuan to its basket of reserve currencies. In addition, both China and Russia have been striking deals around the globe with their trading partners so that they can conduct business without ever needing to use the dollar. As countries pare their reserve-currency holdings to make way for the yuan, the dollar s long-standing status as a reserve currency is in its waning days. All of this delayed interest rates, poor economic data and the end of dollar as the reserve currency says our U.S. dollar is on the verge of fundamental reversal. But you don t need to worry. Not only can you escape from the dollar s decline, you can actually profit from its fall. Four Ways to Profit From a Dollar Reversal As the dollar begins its inevitable course reversal, you need to get out while the getting is good. And the best preparation for the dollar crisis is diversifying your assets away from dollar dependence. There are four different strategies that let you do just that 1. Buy gold and silver bullion. My deep-seated belief is that the dollar must resume its long-term downward bias because of horrific U.S. financial policy and reckless spending habits, and that gold must resume its upward bias because it is the antidollar that moves inversely to the greenback. 1

3 Gold, as the Royal Mint notes, cannot be faked, printed or inflated. Over the very long run, it has historically held its worth. Can anyone make that claim about the dollars in our wallet or any other currency that has come along in the last few hundred years? Our buck has lost more than 95% of its value since the creation of the Federal Reserve, what I argue marks the end of the American empire as we once knew it. Regardless of its price today or investor sentiment toward the metal, gold remains an insurance policy against the insanity on Wall Street. Owning it allows me to protect my family s lifestyle. And since I think gold is headed higher much higher, ultimately that means silver prices also rise and give us potentially outsized returns. Gold and silver have been tied together for centuries, with the gold/silver ratio dating back centuries before biblical times. Pharaoh Menes, leader of the first Egyptian dynasty in 3100 B.C., set the original ratio at 2½ ounces of silver per ounce of gold. For much of modern monetary history meaning since about the 17th century silver consistently traded at a ratio of 15 or 16 ounces per ounce of gold, which roughly mimics the ratio of silver to gold in the Earth s crust. The ratio only began to range widely away from that historical standard as countries began dumping metal-backed currencies for fiat currencies in the 19th and 20th centuries. Absent the constraints that global governments put on the metals as a way to manage currency values, gold and silver prices began to ebb and flow based on market perceptions of fear and greed and, particularly with silver, industrial demand. But as gold rises either because of a financial reckoning that must happen to right the world s many monetary and fiscal wrongdoings, or when the dollar s current strength again turns to weakness silver will tag along. To take advantage of these rising prices, you can buy gold and silver bullion. But is buying and storing bullion easier said than done? Keeping your gold in a bank s safe-deposit box here in America has its own challenges. What if the looming threat of wealth confiscation by the government becomes a reality? And while keeping your metals locked in a home safe may seem secure, it exposes you to natural disasters or theft. There is a better option: the Hard Assets Alliance. Built by some of the world s most-respected independent financial and investment research firms, the Alliance provides a transparent, convenient, safe and cost-effective way to buy and own physical gold, silver and other precious metals. The Alliance makes buying and selling easy with its revolutionary online precious-metals trading platform called SmartMetals. Once placed, your metal-purchase order goes out to bid among some of the world s largest metals dealers. As many as a dozen approved dealers compete to give you the best price, whether they re selling metals to you, or buying metals from you. That ensures you get the best possible price at that moment all from the convenience of your computer. And the Alliance offers only bullion: gold, silver, platinum and palladium. Simply put, when buying gold through the Alliance, you are acquiring widely recognized sovereign coins and standard bullion bars that directly track the spot price of the underlying metal and which are accepted at monetary exchanges, coin dealers and banks around the world. Aside from the ease of buying gold bars or silver coins at the best prices online, the Hard Assets Alliance is unique in that it allows you to store your precious metals in your choice of secure locations worldwide including the U.K., Switzerland, Australia and Singapore. Or, if you prefer, the Alliance can ship your purchase to you anywhere in the world within two days. 2

4 For full details on the Hard Assets Alliance, click here. 2. Make a play on gold prices with Goldcorp. The U.S. dollar was crowned king of the world on July 22, 1944 in Bretton Woods, New Hampshire. Fortyfour Allied nations determined that the dollar would represent the global standard in currency and that each dollar would be convertible into gold at $35 per ounce. At that time, effectively, for every $1 in cash we had 75 cents in gold in storage. Today, the coverage ratio is just 8% although, to be fair, the dollar is no longer linked to gold in any fashion, so no one has any reason to pay attention to the ratio at the moment. That will change. In the currency crisis to come, the concept of a coverage ratio will come back into vogue as investors and central bankers look to anchor paper currencies to the only real asset that has a proven, intrinsic and historic value: gold. And as they do so, prices will move sharply higher. Another way to take advantage of the dollar s decline and gold s move higher is through Goldcorp (NYSE: GG). Goldcorp is not the cheapest miner in the gold patch, but the company is stronger than peers that face liquidity and operational challenges in the near term. Goldcorp s all-in sustaining costs the real costs to produce gold over the life cycle of a company s mines are among the lowest in the industry and falling. The company is generating strong free-cash flow, which goes into new projects, debt repayment and dividends. Its balance sheet is among the strongest in the industry, and it has a collection of high-quality projects that will see Goldcorp generate above-average production growth through the end of the decade. Action to take: Buy Goldcorp (NYSE: GG) up to $20. Set your stop-loss at 50%. 3. Make a play on silver with Silver Wheaton. You might hesitate before buying silver. After all, it s been heading lower steadily for the last four years. But the real reason that silver and other commodities are down in recent years is the dollar itself. Around the world, commodities are priced in dollars, and as the dollar rises in value, commodities tend to fall in price. The linkage that explains this: Foreign currencies buy fewer dollars when the dollar is strong; therefore, foreign buyers have fewer dollars to spend on commodities. But as the dollar falls, commodity prices will rise So while the last four years have not been kind to silver investors, I am confident that silver prices have a big move ahead of them. To take advantage of these rising prices, I recommend Silver Wheaton (NYSE: SLW). Silver Wheaton follows silver prices like a hound follows a scent. The correlation of 0.95 over the last decade is about as pure as you will ever find. Wherever silver goes, Silver Wheaton is sure to follow. The company does not actually own any silver mines. Not a one. Instead, it operates a unique model in mining known as streaming. It buys access to all or a portion of the stream of silver ore produced by other miners. Because of this strategy, Silver Wheaton s profit margins are radically different than the rest of the industry. Gross margins are routinely between 75% and 85%, while net margins are regularly 35% to 60%, sometimes 3

5 more. Pure silver miners operate on one-half to one-third of those levels and in recent quarters, many have posted operating losses, even as Silver Wheaton remains solidly profitable. Silver Wheaton is also increasing production, with annual silver production expected to approach or exceed 48 million ounces by The increased production paired with increasing silver prices gives us a sweetener we won t get just by owning silver alone. We get a dividend. As Silver Wheaton increases production and as silver prices rise, the cash available for dividend payments ramps up quickly. We could see a dividend payment equal to or exceeding 3% of our initial purchase price. That begins to mean something in a world where traditional income assets are still generating returns barely above 0%. So with Silver Wheaton, we re getting a stability play on the metal, plus a dividend that will grow as prices rise. Action to take: Buy Silver Wheaton (NYSE: SLW) up to $ Make a play on silver prices with Silvercorp Metals. Silvercorp (OTC: SVMLF) is a Canadian mining company based in Vancouver, though all of its mining assets are in China. Today, Silvercorp is the largest primary silver producer in China. It operates four mines in the Ying mining district and recently began operations at its GC project in a southern China province near Hong Kong. For fiscal 2014, which ended two years ago in March, the company produced nearly 3.9 million ounces of silver, along with 11,000 ounces of gold, 37 million pounds of lead and more than 8 million pounds of zinc. Basically, every positive trend you want to see in a mining company is happening inside Silvercorp Metals except for one: commodity prices. As I explained before, as the dollar rises, commodity prices fall, as foreign dollars buy fewer and fewer U.S. dollars. As a result, silver prices fell by 10%, lead was off nearly 11%, and zinc was down more than 3%. Because of that, Silvercorp s net profits margins slipped 6 percentage points to 38% and investors took nearly 14% off the value of the stock. But when the dollar falls and silver prices rise, Silvercorp is poised to make a break sharply higher. In an environment where gold prices don t move and the silver/gold ratio returns to more normalized valuations as sentiments about the global economy and industrial metal demand improves, Silvercorp shares could rise 35%. But that s not the environment I envision: We re likely to see much greater gains much! But we can profit from Silvercorp as we wait for the dollar to fall. Financially, Silvercorp is strong. The company has no debt and more than $83 million in cash and securities on its balance sheet meaning that 30% of its stock price is purely cash, which, in turn, means the shares are dramatically cheaper than they actually appear. It also pays a dividend of about 1.4%. With Silvercorp, we re getting a ridiculously cheap, high-octane play that should see triple-digit gains as silver prices return to normal valuations and potentially massive gains as rising gold prices force silver prices sharply higher. Action to take: Buy Silvercorp Metals (OTC: SVMLF) up to $

6 Waiting for the Dollar to Fall Between the Fed s inability to meaningfully raise interest rates and weak economic growth, it s plain to see that the dollar is set to fall. And we can make massive gains as we wait for its decline. So gold remains our insurance policy that benefits from dollar weakness and, in the worst case, protects us against a currency crisis. Silver is the rider on that insurance policy that promises a sweetened payout when either one of those scenarios plays out. Don t be caught unaware by the dollar s death. Prepare with these plays on gold and silver. Until next time, stay Sovereign Jeff D. Opdyke Editor, Total Wealth Insider 5

7 The Sovereign Society 55 NE 5th Avenue, Suite 200 Delray Beach, FL USA USA Toll Free Tel.: Website: Legal Notice: This work is based on what we ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don t trade in these markets with money you can t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. (c) 2016 Sovereign Offshore Services LLC. All Rights Reserved; protected by copyright laws of the United States and international treaties. This report may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 55 NE 5th Avenue, Suite 200, Delray Beach FL

How to Turn Your. Brokerage Account Into an ATM

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