Valuing Gold in A World Awash With Dollars
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod via GoldMoney
Macleod points to the pressure on the Fed to moderate monetary policy, but that will only affect the timing of the next cyclical credit crisis. That is going to happen anyway, triggered by the Fed or even a foreign central bank. In the very short term, a tendency to moderate monetary policy might allow the gold price to recover from its recent battering.
Unlike the last credit crisis when the dollar rose sharply, in the next crisis, the dollar is likely to fall substantially. The reason is that foreign ownership of dollar investments (typically in US Treasuries) appears greatly overextended, and an additional $4 trillion of liquidity is in the wrong (non-US) hands. This is likely to be unloaded during a general credit crisis, driving the dollar lower.
Domestically, in the next credit crisis the Fed is certain to support the banks, provide financing for a runaway government deficit and stabilize the private sector by injecting further liquidity into an economy already awash with dollars. Therefore, not only will the dollar fall on the foreign exchanges, but its purchasing power in the hands of American citizens seems certain to fall as well.
Macleod demonstrates how fluctuations in the quantity of paper gold makes nonsense of the conventional supply-and-demand approach to analyzing and forecasting gold price trends. Futures and forward markets have deflected demand from physical metal, a situation that depends on confidence in the dollar as a stable currency being maintained. Only a marginal shift away from paper towards physical gold will undermine the whole paper-gold system.
Up for discussion: The journey to the next credit crisis; the domestic impact of the next credit crisis; the outlook for the gold price; and why supply-and-demand statistics are useless.
Alasdair Macleod, Head of Research, Goldmoney
Alasdair became a stockbroker in 1970 and a Member of the London Stock Exchange in 1974. His experience encompasses equity and bond markets, fund management, corporate finance and investment strategy. Alasdair is the Head of Research at Goldmoney®, a global leader in precious metal and digital asset investment services, and the world’s largest precious metals payment network. Safeguarding nearly $2 billion in assets for clients located in more than 150 countries, Goldmoney is focused on a singular mission to make precious metals-backed savings accessible to all. Powered by Goldmoney’s patented technology, the Goldmoney Holding® is an online account that enables clients to invest, earn, or spend gold, silver, platinum, and palladium, and digital bearer-assets such as bitcoin, that are securely stored in insured vaults in seven countries. All bullion assets are fully allocated and physically redeemable property. The advantages to individuals and businesses are low costs, convenient 24/7 access, instant global payments, fast settlement, and the security of a closed-loop system with a proprietary digital ledger and exchange. Visit Goldmoney’s website at http://www.goldmoney.com and read more Goldmoney Insights at https://www.goldmoney.com/research/goldmoney-insights. You can contact Alasdair at ir@goldmoney.com.
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