Dollars and gold

The weakness of the US currency strengthens the precious metal.

(Photo: imago images / blickwinkel)

Frankfurt As one of the drivers of the gold price, US bank Goldman Sachs has identified growing concerns among investors that the dollar may lose its leading role as a global reserve currency. Commodity expert Jeffrey Currie and his colleagues believe that gold is the last currency that is still valid when everyone else fails.

“This is especially true in a situation like today, where governments are devaluing their fiat currencies and pushing real interest rates lower than ever,” says a new study. Fiat currencies are those that are not tied to a real value like gold – practically all today. Real interest rates are the nominal minus inflation or, more precisely, expected future inflation.

Currie argues that the “potential Fed propensity for higher inflation” along with “rising geopolitical tensions, greater political and social insecurity in the US”, and “a growing second wave of corona infections” and “record government debt” has gradually led to “serious concerns about the sustainability of the US dollar as a reserve currency”. He raised his gold price target from $ 2,000 to $ 2,300 an ounce. On Wednesday, it was trading at $ 1955.

Devaluation comes first

The Goldman experts point out two frequently overlooked points. First, currency devaluation is often followed by inflation – but by no means always. And secondly: from their point of view, gold is a good protection against devaluation, but is often overestimated as a security against inflation. Oil helps better against rapidly rising consumer prices, they write. Nevertheless, they think buying gold is rational today because the devaluation, which is already beginning to be felt, precedes inflation.

According to a survey by the online platform Bullion-Vault among 1,328 customers, around 47 of the gold investors buy the metal in order to keep it for the long term. 15 percent are willing to sell at an even higher price, but just under three percent often trade in it. Around 38 percent state that the main motive is to use the precious metal to hedge against inflation and currency fluctuations.

There are very different opinions on how well gold is suitable as protection in crises. Christian Keller, the chief economist at Barclays, raises skepticism. “The market offers more efficient instruments than gold to protect against inflation,” he says. And adds: “If the gold trade is based on the fear of a collapse of the system, you would have to buy physical gold, any certificate from any bank will not help much anymore.” Protection against inflation also applies to shares and real estate, as well as special interest rate papers, that adapt to the respective price increase.

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