As a dollar-denominated commodity, the gold market can be heavily influenced by strength or weakness in the greenback. Dollar strength may weigh on gold as it makes the metal relatively more expensive for foreign buyers, while a weaker dollar may boost the price of gold as it makes the metal relatively less expensive.
The relationship between gold and the dollar, and all other paper currencies for that matter, is so important that investors often buy the metal as a hedge against a weaker dollar. Although the dollar has seen some upside in the two years since President Trump took office, the currency could roll over again and continue its long-term trend lower. Here are six reasons why the dollar could get weaker in the months and years ahead:
- Trump needs a weaker dollar:
Without getting too detailed, Trump may want a weaker dollar in order to keep his agenda moving forward. A weaker dollar makes U.S. goods less expensive to the rest of the world and could support the need for manufacturing jobs in key battleground states.
- The long dollar trade is crowded:
Bullish bets on the dollar have been on the rise. This could be due to several factors, however, as the trade gets increasingly crowded it may become less and less attractive. Trades like the long dollar also tend to get crowded as they make long-term tops, and the dollar may be no different.
- Geopolitics will likely calm down:
The state of geopolitics has been a major driver of market action across asset classes for some time. North Korea and its nuclear ambitions and the ongoing trade war with China are two examples. These situations, while serious, will likely find resolution in the months or years ahead. This could fuel an exit from the dollar which is widely perceived as a safe haven currency.
- Inflation expectations may rise: Some analysts and investors think that interest rate differentials are the primary factor behind movement in the currency markets. It is not that simple, however, as money will look to gravitate towards the highest real interest rates, and therefore inflation must be factored into the equation. Low rates in the U.S. will eventually fuel higher inflation expectations, and rising price pressures could potentially erode the value of the dollar.
- U.S. debt is a major issue:
U.S. debt stands at or near record levels, and the problem is not going away. The Fed could eventually be forced to start printing money to cover the gap as treasury sales may not be enough to cover it without sharply higher interest rates. The more currency that is printed, the lower its value should go.
- Emerging market growth:
Because commodities are priced in dollars, they tend to have an inverse relationship with the dollar. As the dollar weakens, commodity prices and therefore some merging markets could go higher. This could potentially create a situation in which an increasing amount of capital leaves the U.S. and dollars and moves into emerging markets.
The long-term outlook for the dollar is bearish. Fiat currencies have shown time and time again that they have a strong tendency to decline in value over time. The dollar will likely be no different, and now is the time to act before the currency embarks on a fresh leg lower in value, taking your purchasing power with it.
Physical Gold may be the antidote to dollar sickness. Gold has been considered a reliable store of wealth and value for centuries, and unlike the dollar, it cannot be created out of thin air. The metal is traded and valued all over the globe and carries no counterparty risk.
Adding this key asset class has never been easier and perhaps never more important. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership and how this asset may play a major role in the years and decades ahead. Our associates are here to answer any questions you may have and can even show you how to build significant allocation using an IRA account.
Don’t wait for the next shoe to drop for the dollar or for the next major economic crisis before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: 401k gold, add gold to my ira, advantage gold, buy gold, dollar decline, emerging markets, inflation expectation, north korea, trade war, trump administration, us debt, weaker dollar