De-Dollarization and Gold Price: Gold has resumed its upward trend after consolidating earlier gains. And, this time, de-dollarization could be the primary reason. Gold price remained below $3,500 after reaching a record high on April 22. Now, the gold price has crossed the resistance at the previous all-time high of $3,500 and is currently trading at $3,535 on September 3.
Gold prices have risen by about 35% in the last six months and more than 40% over the preceding year.
Why Gold Prices are Rising..Again
The recent push for gold seems to be coming on the US Fed rate hopes. FOMC is highly expected to lower rates in the September 16-17 meeting, unless the job market shows resilience and if inflation remains sticky.
If the US Fed cuts the rate, the lower interest rate scenario will further boost gold prices amid the weakening of economic parameters. However, that scenario may be ‘priced-in’ for gold prices. Powell’s press conference will be keenly watched for cues ahead for interest rates.
The US dollar is down almost 10% so far this year. The White House salvos against the US Federal Reserve are raising questions around the central bank’s independence and impacting financial markets as well.
Peter Schiff, Chief Economist & Global Strategist at Europac and Chairman of SchiffGold, in an X post, writes – “The main factor driving gold and bond yields higher is the prospect of the Supreme Court destroying Fed independence. The Court may rule that FOMC members must serve at the pleasure of an elected President, who has the power to fire them at will, as long as he identifies a cause.”
Any weakness in the dollar will also support gold prices. If Trump tariffs take an ugly turn, there is a threat to the dominance of the dollar in international trade. De-dollarization is already posing a significant threat to the heavily indebted US economy.
Gold Bull Run
The bull run in gold started sometime in late 2022. The geopolitical tensions, including Russia’s invasion of Ukraine, China-Taiwan confrontations, and the Israel-Hamas conflict, created financial market fear and uncertainty. Gold emerged as a preferred safe-haven asset during this period.
Geopolitical events prompted global central banks to increase gold purchases, driving up demand and prices. According to a World Gold Council survey, 43% of central banks will increase purchases of gold in the next 12 months.
Global central banks now own more gold than US Treasuries for the first time since 1996, indicating a substantial shift in their foreign exchange holdings. Gold has already surpassed the euro as the second most important reserve asset after the US dollar.
The US dollar’s position as the global reserve currency is facing challenges, influenced by geopolitical shifts and the US debt burden.
Amidst this, gold is gaining appeal as economic and fiat currencies become less stable. The IMF has also observed a continuous decline in the US dollar’s influence, despite its current widespread use.
Trump’s tariff deals, US Fed rate cuts, and other geopolitical uncertainty are among current factors that have the potential to influence the price of gold.