Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, pounting to deflation as a lingering threat. The dollar has fallen 7 percent so far this year and likely has become a funding vehicle for bets on higher-yielding currencies in growing emerging markets. So how should investors guard their portfolios? Jim Rickards, senior managing director of market intelligence at Omnis, shared his insights.
“[The Fed is saying] we’re nowhere near the all-time lows, we’re back to where we were 15 to 18 months ago…So they look at that and say we’ve been there before,” Rickards told CNBC.
“My only view is that it’s a much more unstable and dangerous world: In the '80s, our creditors were Japan, Europe and the [Arab states]—and the three of them were utterly dependent on the U.S. for their national security.”
China is now the U.S.' main creditor and they don’t depend on America for national security, said Rickards. So the U.S. "doesn’t have a lever" to keep China "in line" economically or force Beijing to buy Treasury securities.
Rickards cautioned investors to stay out of the currency trade, as Fed Chairman Ben Bernanke is selling the U.S. dollar and China is selling its yuan. Instead, he advised investors to buy gold.
“Gold is not moving on a monetary vector, it’s moving on supply/demand fundamentals,” he said.
“Very few people think of gold as money. If you think of gold as money, that level is a range between $4,000 and $11,000 an ounce—that’s the price gold will have to be to support the money supply.”
“I’m a deflationary hard-dollar guy but if you’re an inflationist, if you really want to inflate the dollar, have the Fed conduct open market operations in gold and you’ll be a buyer in the gold. Gold will find its level at $4,000—and that’s a 75 percent devaluation of the dollar,” he said.
Rickards said he’s been bullish on gold for a while and said he sees gold rising to $2,000 an ounce “without breaking a sweat” in 2010. “That’s on fundamentals without treating it as money,” he added.
- Watch Rickards' Previous CNBC Appearance (Sept. 5 2009)
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No immediate information was available for Rickards or his firm.