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Metals traders: Watch for FOREX markets extra closely

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(Kitco News) - The global foreign exchange market is in turmoil right during what can be the historically turbulent months of September and October for the stock and financial markets. The strength of the U.S. dollar (the USDX is at a 20-year high), a sharp depreciation in the British pound (record low against the dollar) and a sharply weakening Chinese yuan are all making for instability in the currency markets—especially for the secondary, or smaller, currencies, whose countries' foreign debt structures are many times based on the value of the U.S. dollar.

Noted Morgan Stanley market analyst Mike Wilson this week said the rising value of the U.S. dollar is "untenable" and that history shows such appreciation by the greenback can cause a financial market crisis. Metals traders and all traders need to keep a closer eye on the daily action in the FOREX market.

Importantly, continued volatile currency markets would have a bigger impact on the general marketplace and create still keener risk aversion, for at least the near term. The gold and silver markets could catch a better safe-haven bid if the FOREX market continues to gyrate in volatile fashion and a contagion effect grips the general marketplace. In this scenario, gold and silver would likely see solid price gains on safe-haven demand even if the U.S. dollar index and U.S. Treasury yields continue to rise.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.