Goldman Sachs warns that the US dollar may lose its status as the world's reserve currency. The investment bank has a positive outlook on gold as fears of governments devaluing fiat money increase, and as real interest rates are pushed to all-time lows.
Kevin Helms, 28.7.2020
Goldman Sachs' strategist wrote:
“Real concerns about the longevity of the US dollar as a reserve currency have begun to emerge.”
According to the strategist, the US dollar faces several risks. The investment bank anticipates that the government and the central bank will support rising inflation as the US debt level exceeds 80% of the country's gross domestic product.
“The increased balance sheets of central banks and extensive money printing raise fears of currency depreciation,” they describe, adding that this creates
“…a greater likelihood in the future that central banks and governments will find it reasonable to allow inflation to rise in order to alleviate the accumulated debt burden once economic activity has returned to normal levels.”
Other factors such as increased political uncertainty and concerns about a second wave of coronavirus are also affecting the dollar.
Meanwhile, the price of gold has hit record highs, sparking widespread hopes of surpassing the $2000 mark.* The unprecedented rally in gold prices prompted Goldman Sachs to revise its forecast to $2300 over the next 12 months, even though the firm had already abandoned its previous $2000 price prediction. The price of gold has risen about 7% over the past month, while the ICE U.S. Dollar Index DXY fell by 3.7%.
Goldman Sachs' strategist explains: Gold is the ultimate safe haven, especially in the current situation where governments are devaluing their fiat currencies and pushing real interest rates to record lows.
Bitcoin is also referred to as a safe haven in the current environment. For example, Galaxy Digital's CEO Mike Novogratz believes that central banks are printing money en masse,
“…the environment is great for both gold and bitcoin long positions.”
Even a JPMorgan analyst wrote in a February report that cryptocurrencies should be in portfolios, "because they can uniquely counteract the loss of confidence in local currency and its payment systems in this unprecedented situation." Like Goldman Sachs, JPMorgan also questions the status of the US dollar as a reserve currency in its report last October.
*Translator's note: the price of gold exceeded $2000 later in August.
This article summary is a direct translation of the originalfrom an English-language article.
