Monday, August 3, 2009

Dollar Plunges on Inflation Fears

Weakening Dollar

The U.S. dollar plunged against the Euro, pound, and numerous other currencies today, as renewed concerns about inflation drove up the prices of commodities, with many investors adding raw materials like soybeans, copper and oil to their portfolios.

Investors fled government bonds and the dollar looking for a hedge against inflation, as many are expecting the outrageous spending of the Obama administration to devastate the greenback, bringing enormous inflation for the years ahead.

"A falling dollar is viewed as inflationary," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago. "The best inflationary hedge is typically to increase one's exposure to commodities."

Another positive thing for foreign investors is the weakening dollar allows them to buy the dollar-denominated commodities at bargain prices as their currencies strengthen against the U.S. dollar.

While the weather looks like it's cooperating with grains in the U.S., that won't matter for some, as while supply is increasing with wheat, for example, global demand is falling, which has caused wheat future prices to drop over the last couple of months, while being down by 33 percent from last year.

Along with gold, silver, oil and gas, many other precious metals also increased in value, including copper, aluminum and platinum. Heating oil also rose to $1.8713 a gallon.

Among the metals, copper continues to be a huge winner, as it has closed at a 10-month high, gaining 4.4 percent, much of that coming from increased demand from China, whose manufacturing sector has started to rebound a little, promising potentially even more demand.

Some are trying to twist this into some type of recovery, but in general, it's not huge demand driving these prices up, but the expected inflation coming from the weakening U.S. dollar; that, more than anything, will continue to spur foreign investment in commodities which is a bargain for them.

Weakening Dollar

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