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Tickers in this Article: GLD, SLV, USO, UDN
The dollar has continued to weaken against other currencies, and the cost to Americans has been real. For a long time there have been Bulls who said, "The dollar has gone down so much, it can't drop any further." All the while it has continued to fall.

And the dollar can still go lower with the Fed poised to keep lowering the Fed funds rate in an attempt to stave off recession. In this environment it is important to focus on some ETF strategies that will help hedge against inflation. (For background on the Fed and its policies, see The Federal Reserve's Fight Against Recession and How The Federal Reserve Was Formed.)

Inflation Worries Can Turn Into Reality
You've no doubt heard of the surge in commodity prices and the news that the dollars value is dwindling. A week ago, the dollar value hit 1.5 euros for the first time in history. Inflation fears are looming, and the problem is that this is an area where expectations can easily become a self-fulfilling prophesy. Prices are set on inflation expectations. If managers fear inflation, they set prices higher. If, afterward, it turns out they were wrong, it doesn't matter because they can't go back and change past prices. Another problem is that the Fed focuses on core inflation numbers, which have remained relatively tame.

Traditionally this is the way to go, since stripping out volatile food and energy prices gives a clearer steadier picture of the economy. It is not working here. Prices on food and energy have been consistently going up, and this is a real drag on consumers who are paying the price. Inflation has been moving higher, and the Fed has to try to balance opposing forces with its interest rate decisions.

Fed Chairman Ben Bernanke has a choice between holding strong with interest rates and putting more pressure on a weak economy, or lowering them and leaving inflation worries on the sidelines in attempt to head off recession. He has made it pretty clear that he is willing to make the necessary cuts. The Fed funds rate is already at 3% and is poised to go lower.

Hedge Against Your Shriveling Dollars
Some make the case that the dollar can't go much lower. However, I think we will continue to see decline and continue to see commodity prices rise. Gold has recently been edging toward $1000 per troy ounce (t oz), and silver broke $20 per t oz. Oil has been making record highs regularly and has recently been holding at over $100 per barrel. These three can be good hedges against your cash deposits. You can always buy bars or futures on these commodities, but there are easy ETFs that can give you the exposure you need.

Gold is one of the best known hedges for inflation. For gold exposure there is the Streettracks Gold Trust (NYSE:GLD), which is priced at around one-tenth the spot price of gold per share, and is currently up around 40% in the last six months.

Silver works as a hedge but also is used for many products. It has shined as well. iShares Silver Trust (AMEX:SLV), which gives exposure to 10 ounces per share, has recently been trading north of $200 and is up more than 60% in the last six months.

If you want a good hedge against the price you pay at the pump, the most notable oil ETF is U.S. Oil Fund (AMEX:USO). This is an ETF that focuses on matching the performance of light sweet crude spot prices, and is up around 45% in the last six months.

Lastly, there is even an ETF in straight opposition to the greenback. The PowerShares DB US Dollar Index Bearish (AMEX:UDN), simply moves in the opposite direction of the dollars value. This has been a good side to be on recently, and the ETF has had a return of more than 8% over the last half year. (To learn more, see Inverse ETFs Can Lift A Falling Portfolio.)

The Bottom Line
The dollar has been spiraling, and inflation fears are abound. Despite some saying it can't go down much further, the news recently has certainly left the possibility for future declines. With all the worries in the economy, it is prudent to look at some of the ETFs I have mentioned.

All of these ETFs have their place in a portfolio. If not for speculation, simply as a hedge in an uncertain economic environment. Think about adding one or a couple of these funds to preserve your asset base. They can certainly help to strengthen and diversify your portfolio in these uncertain times.

For more advice, check out Curbing The Effects Of Inflation.

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