Because of the nation’s debt, the Federal Reserve keeps interest rates low and prints more money, which lowers the value of American currency. When the value of the dollar falls, it could trigger an increase in inflation and higher prices. A significant decline could cause hyperinflation and skyrocketing prices. If that happened, American consumers could no longer afford exports, which would affect the global economy. For protection, investors turn to safe havens as the dollar weakens.
Good as Gold
The price of gold increases when the dollar falls because gold never changes in value; rather it reflects the value of a currency at a given moment. An ounce of gold usually buys you the same amount of goods and services it did 50 years ago. Its price goes up and down over time but strengthens when the dollar begins to fall and inflation looms, giving you a hedge against rising consumer costs. Its increased value takes care of higher prices. Investors often buy gold as insurance for uncertain economic times, not necessarily as a vehicle for investment growth. They can, however, take advantage of profits when gold prices rise significantly. Silver and other precious metals also provide safety when the dollar depreciates. Silver does well in any economy because of its use in various industries.
Certain foreign currencies begin to rise against the weakened dollar. Emerging markets, such as those in Brazil and Indonesia, provide high-yield bonds as their currencies appreciate. Canada and Australia have high production of natural resources for exports, and their currencies remained strong during the high inflation of the 1970s. Investors may choose to buy foreign currencies outright, but it’s difficult to predict the future of economies in different parts of the world. Swiss francs are often cited as safe investments because of economic stability in that country and its reputation for a banking system that attracts worldwide investing. Foreign investments will play a major role in worldwide emerging markets, which could account for 70 percent of total gross domestic product growth in the next few years, according to J.P. Morgan Chase.
Energy and technology sectors fare well against a falling dollar because they benefit from the global market. They sell outside the U.S., particularly to emerging markets that have a significant growth in consumers. These countries rely on new infrastructure and will benefit from low-cost, energy-efficient technologies. Energy and tech industries also become more competitive in the worldwide market if the U.S. economy weakens, making them secure investments with potential for gains. Demand for high-efficiency power equipment and new technologies will increase for emerging and developing countries, and it will increase in the U.S. as old infrastructures are replaced.
Real estate investments went south following the housing market bust, but investors later profited from low prices in property. Having property provides a long-term investment for a certain value during uncertain economic times. You might have to wait a while for prices to come back following a downturn in real estate, but the ownership of property gives you security. Investors looking at the worst outcome in a collapse of the dollar have been buying farmland, which could be useful for food production during a crisis.
- Financial Planning: Catch a Falling Dollar
- Investing Daily: Hedging the Dollar -- An Ounce of Prevention
- Business Insider: 9 Safe-Haven Investments in Case Politicians Destroy the U.S. Economy
- Brokerage Review: Best Investments When Dollar Falls -- Real Estate, ETFs, Gold
- Chase: Burgeoning Potential -- Growth in Emerging Markets
Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.