Will Gold Prices Tank? Protect Against a Falling Dollar With These Instead

Oil at $200 per barrel: That’s what an analyst at Goldman Sachs (NYSE: GS) predicted in May 2008. At the time, oil had just hit a record high , surpassing $110 per barrel. A month later, the CEO of the Russian energy company Gazprom predicted $250 per barrel oil.

How well did those predictions do? Not so good.

Oil delivered some great gains over the years, but if you were late to the party, you’re still probably hurting.

But gold is different you say. “Gold never loses its value” is something I’ve seen all over the Internet lately. Tell that to the people who invested in gold back in 1980.

In the late 1970s, the U.S. economy was in “stagflation.” There was little to no economic growth and inflation had soared into the double-digits. Investors flocked to gold in an effort to protect against a devaluing U.S. dollar. But gold started losing its luster by the fall of 1980.

There were plenty of investors who plowed into gold in early 1980, after seeing the gains it had produced. But investors who bought gold above $600 an ounce had to wait a long, long time to break even on their investment.

How long did they have to wait? It took more than 25 years for the price of gold to climb back above $600 an ounce.

Don’t get me wrong. I’ve made my fair share of profits on commodities and commodity-related investments — from oil and gas to agriculture to precious metals. And the price of gold may very well continue to climb. After all, I’ve seen at least one analyst predict gold will top $2,600 an ounce.

But once a commodity hits new highs and analysts start calling for it to double again, I start to worry about the downside risk associated with such “safe havens.”

Stocks with Foreign Currency Exposure
Luckily, volatile commodities aren’t the only option when it comes to hedging your portfolio against the prospects of a declining U.S. dollar. There are literally hundreds of foreign-based companies that trade as American Depository Receipts (ADR) on U.S. stock exchanges.

If the value of the U.S. dollar continues to fall as it has since March 2009, the relative value of many foreign currencies will rise — which will in turn, boost shares trading as ADRs. And if the ADR pays a dividend, the dividend will also see a lift based on a better valuation of foreign currencies.

One of the first holdings I recommended in my Stock of the Month newsletter was a foreign-based beverage distributor. The ADRs of this solid, recession-resilient company probably would have performed well without the currency boost. But the U.S. dollar’s decline has helped this dividend-paying ADR return about +48% so far.

I also hold a foreign wireless provider in my portfolio — it’s up about +28% to date.

If you want to speculate, commodities are where the action is right now. And there still might be some upside in some of those high-flyers. But if you are truly looking to protect yourself against a falling U.S. dollar, don’t overlook the many solid dividend-paying foreign companies that trade as ADRs.

P.S. If you’d like to learn more about the ADRs in my “Real Money Portfolio” and about my Stock of the Month newsletter, click here.