The Perfect European Crisis Trade.
One of the newsletters that I write for is called Currency Capitalist. Months ago in that newsletter I gave our subscribers what I felt was an ideal “European Crisis trade”.
What is it? It’s being a buyer of gold while at the same time being a short-seller of the euro. As you can see from the chart below, it’s taken off very nicely. Click on the chart to enlarge it.
In times when central banks are cheapening their currencies, it was a great time to own gold. Also, a crisis tends to bode very well for gold as well.
However, the euro was at the heart of the European debt crisis which has now turned into more of a contagion.
So my thought was…who in their right mind wants to own euros right now when there are so many uncertainties producing so many potholes in the road for the euro?
Then my thought was, if large institutions had the choice between buying gold or buying euros, which would they take right now? For me, it was a no-brainer. They’d buy up gold and shun the euro.
Therefore by buying gold and shorting the euro, we could take advantage of both dynamics. If gold ran higher OR if the euro plunged lower…either way, we’d come out great. In fact if both of those scenarios happened…even better for us. And that’s exactly what we got.
To me, this was an even better trade right now than being long gold and short dollars because the focal point of the crisis was in Europe this time around…unlike in 2008.
If you’d like to see more of our ideas in Currency Capitalist, come check it out here.