The following question is from Debra:

I’ve been sitting on a large amount of US$ cash because I took profits on some US stocks last year. I’m out of the market presently (and crying over the declining value of my US dollars). I am wondering how best to hedge since I’m long-term bearish on the US$, any ideas? What do you think of buying some gold via GLD?

As the Canadian dollar hits levels not seen in thirty years, it must be tough to hold cash in US dollars. Investors in US equities are at least slightly better off because while the Canadian dollar has appreciated 10% in 2007, the US market has also gone up by roughly the same amount.

I’m not sure I have a good answer to your question because a lot depends on what your plans are for your cash holdings. For instance, if you are saving for a down payment one year or so down the road, you might as well flip a coin to decide if you want to convert to Canadian dollars now or later. I’ve seen forecasts that call for a loonie at-par and at least one that pegs it at 84¢ by the end of the year.

As far as I know, it is neither easy nor cheap for small investors to hedge their currency holdings. Historically, gold has usually rallied at times of US dollar weakness but the current rally, if anything, seems to be a story of Canadian dollar strength. Year-to-date, gold is up only 3% in USD terms and the euro has appreciated just 2% against the greenback. So, I am not sure how much of a refuge GLD will offer you in the future either.

This article has 5 comments

  1. An alternative is to use your cash to buy FXC, the ETF traded in the US in US$. It invests in C$ and so rises as the Canadian dollar rises. You get 3.75% interest currently from the fund, distributed quarterly, but pay annual expenses of 0.40%, deducted contnuously by the fund managers, Rydex Investments. The primary benefit is that the fund matches as the Canadian dollar, thus maintaining the value of your US holding relative to Canada. Check out a stock chart for that symbol on Yahoo to see how that has been doing in the last while.

  2. Hey outroupistache, that’s interesting I didn’t know about that one myself. I personally have a huge US portfolio, but I didn’t sell off any of it so I’m still fully invested stateside.

    In my view, there are still so many undervalued companies on the NYSE and NASDAQ (undervalued to me is single digit P/E ratios) which stand to benefit even more (by being exporters or multinational firms that report in USD) by a falling US dollar. So, when the USD falls, then I’m always interested in seeing how inflated the next quarterly report looks!

  3. Thanks for the tip about FXC. It’s an interesting product though I am wondering if there is a situation where it would be useful.

  4. I don’t see the CAN $ that high for long. Many economist see the CAN $ to fall by the end of the year. My guess is that right now you should leave your money in US $. Or buy more US companies are they are undervalued. It will probably all gonna change starting next January… new election are coming…
    Cheers,
    FB.

  5. This hits home for me,even my alleged advisers did not have an answer ,I bit the Bullet and converted most of US to Canadian and took a hit.

    I still have a substantial amount in $US bonds going out a couple of years so I held on to them and hope I am doing the right thing as it seems even the EXPERTS dont have an answer,

    PT