The investment bank, Goldman Sachs, stated that the US dollar risks losing its status as the world’s global reserve currency, as unveiled by the current surge in gold prices.
Goldman Sachs analysts wrote in a note to clients that gold would be the currency of the last option, particularly in the current circumstances where governments are devaluing their fiat currencies.
Gold’s Rally Highlighting Global Economy Concerns
The record high in gold rates is raising issues concerning the US dollar’s future as the world’s reserve currency. The value of gold boosted much awareness as the asset soared to $1,931, an ounce, the highest settlement in history.
While the occurrence led the crowd to expect $2,000 an ounce shortly, Goldman Sach projection suspecting $2,300 an ounce within the following 12 months. The investment bank also raised its silver outlook from $22 to $30.
As per Goldman analysts, several factors are driving the gold price higher, including concern of increasing political risk, rising anxieties involving added spike in COVID-19 infections in the nation, growing government debt, progressing inflation, and matters that the US dollar is witnessing a new downtrend to the Chinese Yuan. The analysts said that the debt building up as a consequence of the coronavirus epidemic might lead to debasement concerns.
The analysts see the potential for more eminent inflation as governments devalue their fiat currencies to deal with rising debt. Debasement risk is developing as a result of the rising debt built up by policymakers attempting to resist the economic consequence of the coronavirus.
While gold is not the most reliable hedge against inflation related to other commodities such as base metals and oil, the analysts affirmed that it is the best asset in the prevailing environment since it seems that increase would be hit by currency debasement.
The view that the U.S dollar may one day be seen as less of a safe-haven currency endangers its status as the world’s reserve currency. This role has given the U.S financial system a significant influence in the worldwide financial markets for many decades.
Gold is seen as a safe commodity because it is in an inadequate supply and considered to have intrinsic value.
This signifies that worries of inflation, as well as other economic disturbances such as the COVID-19 pandemic, could drive up the demand for gold.
The analysts said that inflation uncertainties continue low today. Nevertheless, a junction of factors occurring together could drive inflation up in the future. Among such circumstances include record-low interest rates, which are new steps practiced by the Federal Reserve to increase its balance sheet and rising debt.
US$’s Worldwide Dominance: Is it the end?
Numerous observers consider that the world is seeing the start of the end of the dollar’s position as a global world’s reserve currency. There are several interrelated factors that support this view, like the soaring U.S trade deficit, Americans not saving enough, and others. The current trends are putting the U.S dollar’s role as the world’s dominant currency at risk.
The dollar’s part of the global reserve is fading, while the Chinese yuan and the euro are growing more prevalent. Both market volatility and politics can be blamed for the dollar’s deterioration of market share. A few central banks actively resorted to expanding their reserves to move away from the dollar’s dominance because of conflicts of the U.S., But it is too quick to say that it is the opening of the demise of the dollar as the world’s reserve currency.