It’s no secret that the dollar and gold often exhibit a negative correlation. Because gold is a dollar denominated commodity, a weaker dollar makes gold relatively less expensive for foreign investors while a stronger dollar makes gold relatively more expensive.
It’s also no secret that the dollar has been losing value for years. In our view, loss of value is inevitable when it comes to fiat currency. Unfortunately for users of fiat currency, as their value declines they buy less goods and services. While all of the possible problems associated with a weaker dollar are a subject for another post, we thought we’d outline three simple reasons we believe the dollar will continue on its long-term decline.
- A move away from the dollar has already begun: Countries such as China, Russia and others have already begun establishing non-dollar denominated swap lines. In other words, these nations are setting up vehicles for trade that bypass the dollar. As demand for dollars declines, so too could its value. While crude oil is still traded in U.S. dollars, even the Petrodollar’s days could potentially be numbered. Should this one day occur, look out below. The dollar could potentially see a significant decline that could change global trade as we know it.
- The Dollar’s status as the global reserve currency is shaky: As more and more nations have established swap lines bypassing the dollar in the process, more and more nations have also been calling for an end to the dollar’s world reserve currency status. In a sign that things are changing, the Chinese yuan was recently accepted as part of the IMF’s SDR or Special Drawing Rights. It would appear that China is another step closer to cementing its place among the world’s economic elite. Should the dollar lose its global reserve status at some point, a whole flood of dollars could find their way back home, creating a massive supply glut that would likely drive its value sharply lower.
- A drop of U.S. Bonds by China or other large holders could have a massive impact on the dollar and global markets: China is the largest holder of U.S. debt in the world. What might happen if China decided to put its money to work elsewhere? Among some of the potential possibilities are a massive dollar decline, a huge spike in interest rates and significant economic troubles. While China still holds considerable U.S. debt, that could potentially change in the future. A large scale move away from U.S. treasuries could have extremely dramatic effects.
Some of these issues have already been set in motion. As more nations move away from the dollar, other nations may follow like dominoes.
Don’t ignore the writing on the wall…
Take steps now to try to protect your portfolio and financial future. Consider adding gold and other precious metals to your holdings. These precious metals could potentially increase in value if the dollar declines. To explore your options today, speak with an Advantage Gold account executive. Our professionals will answer any questions you may have about buying physical gold and can even show you how easy it is to buy physical gold in your IRA account. Don’t wait for your purchasing power to decline further. Call us today at 1-800-341-8584.Tags: add gold to my ira, advantage gold, chinese yuan, demise of petrodollar, dollar collapse, fiat currency, gold, precious metals, protect your portfolio, silver