Currency prices go up, they go down, and sometimes they crash. And just like other financial markets, currency prices are not immune to volatility. Should you be hedging your portfolio against currency volatility?
Chaos Happens
The first argument in favor of currency hedged investments is that chaos happens.
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Selling pressure in the euro has been relentless over the past year and the currency has fallen just over 19% in value. Without surprise, pessimism toward the euro has been building.
Look at these recent mainstream headlines:
Delight or Dread as Euro Falls – New York Times (Mar.
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Gold has it bad and that ain’t good. Especially if you’re a goldbug.
Not only has gold officially forfeited it’s year-to-date gains, but over the past month it’s closely shadowed one of the globe’s worst performing assets; the euro (NYSEARCA:FXE).
(Audio) Listen to Ron DeLegge @ The Index Investing Show
Ahead of gold’s (NYSEARCA:UGL) latest pullback,
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Have market participants underestimated the possibility of a divorce between Greece and the euro?
The chart below illustrates the market implied probabilities of a Greek default along with an exit from the euro (“GREXIT”) since late 2009. As you can see, up until early 2013, both scenarios moved in virtual lockstep with each other.
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How did market participants react to the ECB’s 1.1 trillion euro QE-styled asset purchase plan? By pouring money into European stocks.
Europe focused stock ETFs (NYSEARCA:VGK) collectively raked in 65% of all global ETP asset flow last week, gaining just over $4 billion in new assets.
(Audio) Listen to Ron DeLegge @ The Index Investing Show
Despite reluctance by Germany (NYSEARCA:EWG),
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