There’s a growing chorus of analysts who think the US dollar will weaken in 2019 and going forward. The Fed’s newly more dovish tone supports this view. The recent rise in gold prices is part of this pattern.
We’ll see soon enough what the Fed actually does, and what that will do to the US dollar… and to gold… and to gold and silver stock speculations.
The odds look good. I’m very bullish on precious metals this year.
But there’s a choice to make now that can impact the outcome for speculators: where to buy.
For stocks with dual or multiple listings, there’s always a question of which exchange to trade on. Most of the junior resource companies I’m most interested in are primarily listed in Canada, but many have US listings as well. Others are primarily listed in London or Australia. Relatively few of these also have US listings.
At the end of the day, we go to whichever market we have to, in order to get in on a terrific opportunity. But when we have choices, it makes sense to buy stocks on exchanges in countries where we already have accounts. That saves not only on setting up new accounts, but also on the foreign exchange fees we’d incur sending cash to different countries.
Personally, since I’m in the US with brokerage accounts in the US, I tend to buy stocks on the US exchanges whenever possible. The Canadian, British, and Australian exchanges are for when there’s no other choice.
If I were Canadian, I’d buy in Canada whenever possible, of course. The same goes for the UK and Australia.
That’s under normal circumstances.
But what if I became convinced the US dollar is headed south in a big way?
If the Canadian dollar were to reach parity with the US dollar, buying Canadian stocks in Canada could add 30% or more to my gains. Failing to do so could subtract 30% or more from my gains. The difference between this tailwind and headwind is huge when forex rates change drastically between the time we buy and the time we sell.
Could that really happen?
Yes. It was just a few years ago that the Canadian dollar hit parity with the US dollar. It could easily happen again.
But aren’t the US and Canadian economies closely tied together?
Yes, but the Canadian dollar tracks the euro more than the US dollar. And Canada is a resource economy that can sell more to China, if that’s the way the wind blows.
This forex swing factor bears close watching this year.
I’m not ready to go on record predicting that the Canadian dollar will rise compared to the US dollar this year. But if that trend takes shape and solidifies, a strong Canadian dollar tailwind would certainly affect where I’d want to buy my stocks.
My purpose today is to highlight the issue, in case you’re inclined to make your own call on this.
As always, caveat emptor,
Wednesday, February 6, 2:15pm, EST, 2019