When you join my Inner Circle service, you get to ask me your own personal investment questions, plus you get to see what other Inner Circle members have asked. So you can see how the service works, and get a sense of how it might help you make good investments, I’d like to share just a couple of recent member questions with you. I hope you enjoy and profit from them.

Q: A friend of mine recently purchased a “Trading Robot” to help him make good investments. He is ecstatic because the robot can trade 24 hours a day with inputted instructions respecting trading. He is required to place his investment funds with a brokerage in Dubai, although he says he will set up a segregated account in the U.K. What is your opinion/experience with “Trading Robots”? Many thanks.

A: Foreign exchange (“forex”) trading robots automatically place trades on your behalf using a complex formula.

These robots are typically marketed with impressive-looking performance records designed to make investors think they have a strong track record of selecting good investments. However, those records are typically derived by “back-testing” the program against past data. In other words, the promoters go back through old trading records and see what would have worked to make good investments in the past.

Automated systems that make trading decisions for you can only do two laborious, but essentially simple things. First, they narrow down the data that you use to make investment decisions. Second, they then apply some fixed rule or rules to draw a conclusion or an investment decision from that selection of data.

The trouble is that the market’s key concerns continually change. Today’s good investments can turn into tomorrow’s dead ends.

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A standard marketing claim reads like this: “Well, simple and to the point: if you back-test a robot and it shows 100% ‘demo’ profit in one month, it should PRODUCE around 80-100% profit in LIVE trading. That’s it … no more and no less!”

For a time, these systems can help you make good investments, but that’s usually coincidental. If the market is going up and they tell you to buy volatile investments, then they automatically generate profitable trades. Then they quit working, and begin pumping out unprofitable trades. Often this happens just when they can do the most damage to their users.

It all comes down to a basic rule: if trading was as easy as promoters of trading systems make it out to be, why would anybody work?

Q: What would be the ramifications of a change from the U.S. dollar as the global reserve currency? I am a long-term investor and follower of your advice and would appreciate your comments.

A: China has recently raised the question of an alternative reserve currency. That’s because it holds $1.9 trillion in U.S. dollars, and it’s worried that a falling U.S. dollar will erode the value of this holding.

At times, China has threatened to sell some of its U.S. dollars. However, dumping even a fraction of its holding would undermine the value of the remainder. More important, China needs to maintain U.S. goodwill because it needs U.S. consumers to continue buying its low-priced manufactured goods, and it wants to avoid the risk of U.S. trade barriers.

But the main reason that China will continue to be a big holder of U.S. dollars is that there are no real alternatives. Currently, U.S. dollar-denominated assets account for 64% of the world’s official foreign reserves. The euro is next, at 27%. The British pound accounts for just 4.1% and the Japanese yen makes up only 3.3%. If you look at global foreign-exchange trading, the U.S. dollar is involved in 88% of all trades.

Gold is the only dollar alternative that might work as a reserve currency. The arguments for replacing the dollar with gold make as much sense now as they did 40 years ago, when the U.S. began cutting the last links between gold and the dollar.

Of course, many government policies need to be changed, but won’t be. And while the U.S. dollar has its faults as a worldwide reserve currency, alternative policies face too much opposition from those who have an interest in maintaining things as they are. We put the gold standard in that category. We think it would need decades to overcome the resistance it faces.

We keep the question under review, but for now we see little risk that the U.S. dollar will lose its reserve-currency status in the foreseeable future.

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If you’d like to ask me about stocks you’re considering buying (or selling), or if you have any other investment-related questions, you should join my Inner Circle service. Click here to learn more.