The U.S. dollar is making a comeback as of late even when market uncertainty surrounding events like Covid-19 and the forthcoming presidential election should be feeding into more strength for gold. The rally has analysts wondering what the ceiling is for the greenback and whether it’s sustainable.
“A previously beaten-down U.S. dollar is bouncing with a vengeance this week, appearing to kill demand for gold and weighing on other commodities. Investors are wondering how much further the currency can rise,” wrote William Watts in a MarketWatch article.
And while equities like tech have taken a step back this month, the dollar has gone the opposite direction.
“The dollar has rallied as stocks have suffered a steep September pullback, perhaps showing the U.S. currency is still a haven during periods of rising financial market volatility, perhaps soothing concerns it was losing some of its shine amid questions over potential political instability and institutional decay ahead of this November’s presidential election,” the report added.
Investors who want to take a contrarian view on a weakening U.S. dollar can look at greenback strength via the Invesco DB US Dollar Bullish (NYSEArca: UUP) or the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU). UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
On the other hand, the actively managed USDU tracks the USD against a broader basket of developed and emerging market currencies, including China, India, South Korea, Switzerland, Australia, Mexico, the United Kingdom, Canada, Japan, and Europe.
USDU provides investors with:
- a broad, dynamic, and effective way of gaining exposure to the U.S. dollar against a basket of foreign currencies in an ETF structure.
- an alternatives bucket as a broad-based diversifier as it exhibits strong negative correlations to international equity and bond portfolios.
An alternate way to play a weaker dollar is via gold, which typically moves opposite of the U.S. dollar. Investors can use gold-backed funds via the SPDR Gold Shares (NYSEArca: GLD).
Another fund to consider is the Global X Gold Explorers ETF (GOEX). The fund seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Gold Explorers & Developers Total Return Index, which is a free float-adjusted, liquidity-tested and market capitalization-weighted index that is designed to measure broad-based equity market performance of global companies involved in gold exploration.
For more market trends, visit ETF Trends.