“Dollar Debasement” Driving Gold’s Record Rise, Says Goldman Sachs

gold vs dollar

From Birch Gold Group


For decades, the U.S. dollar has enjoyed unparalleled hegemony as the global reserve currency. But today, it appears that a bit of reality is setting in.

Back in 2002, the U.S. dollar index (DXY) peaked at 118.85, before crashing over the next 6 years to 72.23 in 2008. It struggled to regain any semblance of its former dominance until March of 2015.

Gold’s price has followed a different trajectory, increasing sharply in value from 2008 to August of 2011, where it reached a record high at the time. While the dollar was struggling to recover, gold seemed to provide a safe haven for people to place their savings.

And that’s where this story begins.

An article on ZeroHedge posed a question that has the potential to become a reality. One where gold could also get another big boost in value:

In short, what if the dollar is no longer the world’s reserve currency?

The article continues with an explanation: “After all, in a world where there is over $100 trillion in dollar-denominated debt which can not be defaulted on and thus must be inflated away, the ‘exorbitant privilege’ of the dollar has become a handicap.”

In a recent report to its clients, Nomura Holdings confirmed this line of thinking, saying, “We expect the US dollar to follow a path of reduced dominance and weaken over the long term.”

Even Goldman Sachs’ Jeffrey Currie has said, “Real concerns around the longevity of the US dollar as a reserve currency have started to emerge.”

And the weakening of the dollar isn’t a new trend. For some time, rising geopolitical tensions, new resistance to the dollar’s hegemony, and the prospect of “digital cash” have all contributed to the recent downward pressure on the dollar.

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This perfect storm of threats to the dollar’s value could signal a long-term devaluation. “The dollar has become the world’s punching bag and it’s likely to stay that way for awhile,” according to a piece on CNBC.

It could also mean it’s gold’s time to shine.

The Dollar Could Be Giving Gold Some Safe Haven “Rocket Fuel”

According to the same ZeroHedge piece, Goldman Sachs is going “all in” on gold. In that piece, Currie noted the following, made possible by the recent downward pressure on the dollar:

With more downside expected in US real interest rates we are once again reiterating our long gold recommendation from March and are raising our 12-month gold and silver price forecasts to $2300/toz and $30/toz respectively from $2000/toz and $22/toz.

As you can see in the chart below, the dollar is in fact failing to regain the luster it once had in 2015, while gold seems to be rising at a record pace for the second time this decade:

USD vs GOLD 2016-present (1)

Currie finished his note with the following, focusing on the debasement of the dollar: “Today the risk is from debasement of fiat currencies that sows the risk for inflation and gold is the best hedge against debasement.”

If all of this plays out like the ZeroHedge piece and Currie’s note claims, gold’s price could be in for quite a ride upwards, thanks to the dollar:

Indeed, even at $10,000/oz, the total value of gold would be just around $50 trillion, which is still orders of magnitude below the value of global financial assets that need to be hedged.

But even if it doesn’t play out exactly this way, the price of gold may very well go even higher in the near-term. Who knows how high it will go?

As Dollar Optimism Evaporates, Now is the Time to Prepare

Any blind optimism for the current U.S. dollar hegemony is likely to be short-lived. A host of other countries are positioning to take a home-run swing at the U.S. dollar’s dominance in global markets.

If the dollar loses its dominance as the global reserve currency, or digital cash takes over, you can be sure big economic changes will be on the way.

So, while there is still time, think two steps ahead and consider hedging your bets against the debasement of the dollar.


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