The global foreign exchange market is in a lot of trouble right now, in September and October, which have been historically rough months for the stock and financial markets. The strength of the U.S. dollar (the USDX is at a 20-year high), the sharp decline of the British pound (record low against the dollar), and the sharp weakening of the Chinese yuan are all causing instability in the currency markets, especially for the secondary, or smaller, currencies, whose foreign debt structures are often based on the value of the U.S. dollar.
Noted This week, Mike Wilson, a market analyst at Morgan Stanley, said that the rising value of the U.S. dollar is “untenable” and that history shows that this can lead to a crisis in the financial markets. All traders, including those who deal in metals, need to keep a closer eye on what happens every day in the FOREX market.
Importantly, continuing currency market volatility would have a bigger effect on the market as a whole and make people even less willing to take risks, at least in the short term. If the FOREX market keeps moving around erratically and a ripple effect spreads to the rest of the market, gold and silver could get a better price as safe havens. Even if the U.S. dollar index and U.S. Treasury yields keep going up, safe-haven demand for gold and silver would likely lead to strong price gains.
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