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Not About Gold – All About The Dollar

Analyst, Author, and Owner of Kelsey's Gold Facts
April 11, 2022

IT’S NOT ABOUT GOLD

There is a lot of talk centering on the US dollar and its “ultimate end as the world’s reserve currency”.

There is also additional talk about what this means with respect to the price of gold, but that is just talk.

The price of gold tells us nothing about gold. The only thing a continually rising gold price tells us is that the US dollar continues to lose purchasing power. (see What’s Next For Gold Is Always About The US Dollar)

IT’S ALL ABOUT THE DOLLAR

As for replacing the US dollar as the world’s reserve currency, is there a better alternative? Below is a chart (source) of DXY (US Dollar Index)…

DXY (U.S. Dollar Index)

There is information in the chart above that might change our perception of the current status of the US dollar; namely, the US Dollar Index is at the same level today as it was thirty-five years ago, in 1987. 

Also, the US Dollar Index risen forty percent from its low point in 2008.

Now, lets look at the how the US Dollar Index has fared over the past ten years…

DXY (U.S. Dollar Index) 10-Year

In the above chart we can see that the US dollar has risen twenty-five percent since mid-2014 and, looking at both charts, appears to have established progressively higher levels of support at 70, 80, and 90.

US DOLLAR, CHINESE YUAN & GOLD

Now, let’s look at one of the currencies not in the US dollar index. The Chinese Yuan has been mentioned both singly and, along with other currencies, as an alternative to the US dollar. See the chart (source) below…

 Dollar Yuan Exchange Rate (10-Year)

As China’s role in international trade has grown, so, too, has the attention paid to its currency.

The past couple of years have seen the Yuan strengthen vs. the US dollar but it probably isn’t a viable alternative to the US dollar.

The Yuan has also been suggested as an alternative to the dollar for international pricing of gold. That, too, is unlikely to happen.

Whether it does or doesn’t, though, is irrelevant as far as any expected changes in gold. (see Gold And US Dollar/CNY)

CONCLUSION 

The US dollar is the world’s reserve currency.  That isn’t likely to change soon – unless there is a calamitous implosion of the dollar. A calamitous implosion implies outright rejection and repudiation.

That could happen, of course.  The problem is that there isn’t another currency that could likely take the place of the US dollar. By the time any potential calamity becomes a reality, any possible candidates would likely be in worse shape.

Other alternatives have been suggested, such as cryptocurrencies, but those are not currencies or money. They are processes for the private transfer of money. The privacy feature will not be a factor for very long, either, as governments and regulators continue to speak and act with the intention of exerting control over the processes.

All currencies are substitutes for real money, i.e. gold.  And because all governments inflate and destroy their own currencies, the possibility of gold reasserting itself as the international medium of exchange continues to increase.

Even so,  a lot of worse stuff has to happen before we get to that point.  Governments around the world have too much at stake to capitulate when it comes to ceasing to issue ‘funny money’.  (also see Gold And US Dollar Hegemony)

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Kelsey Williams has more than forty years experience in the financial services industry, including fourteen years as a full-service financial planner. His website, Kelsey's Gold Facts, contains self-authored articles written for the purpose of educating and informing others about gold within a historical context. In addition to gold, he writes about inflation and the Federal Reserve.

Kelsey is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED! 

Kelsey Williams is available for private consultations, public speaking, and interviews at [email protected]


In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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