Dollar Up, Commodities Down

Sovereign Debt Putting Downward Pressure on Commodities

The continuing sovereign debt fiasco in Europe has caused investors to look to the U.S. dollar and gold as their choice of currency for safety. And yes, gold is increasingly being thought of a form of currency again by people, as they begin to learn the inherent weakness in paper currencies.

An interesting part of all of this is as the crisis in Europe continues to unfold, it forces investors to decide whether to invest in gold or the U.S. dollar for a place of safety, and many times that has resulted in both going up in price on the same day, telling us people are thinking of both of the commodities as a place to be.

As far as commodities in general, they won't behave in a similar matter because of being denominated in U.S. dollars. When the dollar goes up, foreign investors tend to flee commodities for that reason.

It's not that the U.S. dollar is on a rebound or considered healthy in any way, it's that when you compare it to the euro especially, it makes it look robust in comparison. That's what's largely driving this reaction to commodities, and it will continue on in what should be some wild swings unrelated to supply and demand.

Portugal today was downgraded for its debt by Fitch Ratings, adding another element to the sovereign debt crisis in Europe, which seems to only be getting started as to the revelation on how deep it really is.