As Emerging Market Currencies Collapse, Gold is Being Mobilized
The comments below are an edited and abridged synopsis of an article by Ronan Manly
Global financial markets have been increasingly spooked by an intensifying crisis in emerging market currencies, including those of Turkey and Argentina. Add to this the ongoing currency crisis in Venezuela, and the currency problems of Iran. While these countries have economy-specific reasons that explain some of their currency weakness, there are common themes: a stronger US dollar, high domestic inflation rates, economic mismanagement, reliance on foreign borrowing, and in some cases, economic sanctions imposed by the US.
As one currency plummets, it intensifies emerging market risk across the entire asset class, and it’s not unreasonable to speculate whether the contagion could spread. The Brazilian real and South African rand have come under pressure and in Asia, the Indonesian rupiah and Indian rupee are also now weakening against the dollar.
Physical gold is becoming increasingly important within these emerging economies, coming to the fore as it always does in times of crisis. It is interesting to look at these currencies and examine how gold is a safe haven for these countries’ citizens, as well as creating a challenge for their leaders and central banks.
Manly discusses buying up gold as the Turkish lira plunges; Iran—investing in safety as the crisis intensifies; Maduro plays the gold card as hyperinflation reigns; and the contagion spreads.