COIN MARKET INSIDER • VOLUME 33 • ISSUE 21

Threats to the US Dollar Positive for Gold

The US dollar is under pressure from a variety of sources…

The main problem for the US dollar comes from within… years of bad fiscal and monetary policy have produced a world awash in dollars. There is literally no long-term scenario for the US to service its $31+ trillion debt that doesn’t end up with payments made with dollars cheapened by inflation.

As we have detailed in prior issues, the dollar is also under pressure from foreign rivals who seek to replace it as the world’s reserve currency and medium of exchange for international commerce. This is particularly the case with China.

China is said to be developing a digital currency which some say would position it to eventually surpass the US dollar in commerce. But some are saying that the US should develop a digital dollar of its own.

In this case, the remedy may be even worse… a digital dollar could spell the end of what little financial privacy we still have.

According to the International Monetary Fund, the dollar’s share of official foreign exchange reserves fell to a 20-year low of 58% in the fourth quarter of 2022.

What happened in 2022 was a very sharp drop in the dollar share in real terms,” Jen said, adding it was in response to the freezing of half of Russia’s $640 billion in gold and foreign exchange reserves following the invasion of Ukraine in 2022.

This prompted a rethink on diversifying into other currencies in countries like Saudi Arabia, China, India, and Turkey.

Even if there won’t be a single-dollar successor, alternatives that are springing up could create a multipolar world.

BNY Mellon’s Yu said nations have realized that one or two dominant reserve asset blocks are “just not sufficiently diversified.”

Global central banks scrutinize a wider variety of assets, including corporate bonds, real assets like real estate, and other currencies.

“That’s the process that’s underway,” said Mark Tinker, Managing Director of Toscafund Hong Kong. “The dollar is less used in the global system.”

Gold is an exceptional hedge against the uncertainty created by all of this fragmentation.

Unlike man-made currencies, no one can print more gold. It is the ultimate form of real, honest money. It has been a trusted medium of exchange for 5,000 years and in the midst of “de-dollarization” world central banks have been increasing their gold holdings.

Central bankers know more than anyone else that man-made currencies are subject to bad policy decisions and shifting political winds.

Individual investors should also hedge their wealth against uncertainty surrounding the dollar and a possible currency crisis by including physical gold investments as part of a balanced portfolio.