Inflation, instability, interference, these are the things that try our souls (to paraphrase American patriot Thomas Paine). They’re also the things that can make one think twice about keeping their wealth in dollars.
The U.S. dollar has risen sharply off its May 2021 low, posting a 14% gain (at its recent peak) against a broad basket of currencies. It now stands near its highest levels in decades versus major currencies like the euro, the British pound, and the Japanese yen and interest rates are rising. So why get out of the dollar now? For one thing, geopolitical instability is all around us and there’s simply no telling how that will turn.
“The dollar is an unsound credit,” says Keith Weiner, Monetary Metals. “The debtors are being squeezed. To stave off cascading defaults through the financial system, the Fed (Federal Reserve) will have to reverse course and begin a new program of massive easing. The dollar has had a good run against other currencies, so it may be due for a correction.”
Tightening monetary policy, courtesy of the Federal Reserve and safe-haven buying are the main reasons the dollar is soaring in value. The Fed (Federal Reserve) is arguing that it is trying to stop inflation from hitting rampant levels by tightening the money supply, i.e., making money “expensive” again – remember the 1970’s? No wonder 85% of Americans believe we will enter a recession in the next three months. According to the BMO Real Financial Progress Index one-quarter of Americans will need to delay their retirement. Simultaneously, a lot of money’s moving into “alternative investment fundraising,” i.e., non-correlated investments. Some $77 billion has been invested in alternatives through August, a 56% increase over the same period a year ago according to Investment Banking firm Robert A. Stanger & Company, Inc.
It’s no secret that costs continue to rise and although the price of oil has sharply fallen, one’s dollars still buy less than they did just a few months ago. Inventories are larger than new orders as inflation weakens consumer purchasing power. A strong U.S. dollar also makes it more difficult for U.S.-based exporters to sell their goods abroad.
Should one offload some dollars what should they buy? Is it time for other alternatives like commodities?
According to Weiner, the typical commodities are not necessarily the answer. “Other than a short-term trade, who could recommend holding the euro, pound, etc.?” asks Weiner. “So that leads to alternatives. Each commodity has its own supply-and-demand problems. That leads to gold, which is held as a monetary reserve and not bought to be consumed like oil, copper, etc."
Weiner may be on to something. Philip N. Diehl (35th Director of the U.S. Mint and President of U.S. Money Reserve) said in a statement that "peak gold" may have already been reached or at the very least is fast approaching. Peak gold is the point at which the maximum rate of gold extraction is reached, after which mining will slowly decline until gold can no longer be mined at a profit. Once peak gold is reached, gold supply will be limited, potentially increasing gold prices.
You may be asking: why not crypto instead of gold? “Crypto is a zero-sum game,” argues Weiner. Every penny that anyone makes on it, comes from the capital paid by new buyers. Crypto is obviously superior to gold in skyrocketing. But it’s also superior at wicked crashes. It’s a wild ride in a casino, for now, and in the end zero.“
Consumer prices have been on a tear, since early last year. Presently the Consumer Price Index (CPI) is rising at more than 8% per year.
Source: St Louis Federal Reserve
© Jeffrey Dumas
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