The dollar has problems: billionaires have found an alternative to it

The dollar has problems: billionaires have found an alternative to it
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As the price of gold rises, the global financial world and the media community are beginning to realize that those investors, many of whom are representatives of the super-rich families of the Western World and who were hoarding the yellow metal back in April and May, are again one step ahead of all other participants in the financial markets.

On Friday, the price of gold for immediate delivery in New York rose to 1901.3 dollars per Troy ounce - a multi-year record, and many experts believe that the attack of the level of 1920 dollars, that is, the highest price of gold ever recorded, is just a matter of time.

Gold is a monetary metal. It is such a metal, which has value due to its monetary properties, rather than industrial use. There are multiple varieties of explanations for such a high popularity of the main competitor of the dollar: from the general flight of investors from risk in the context of the coronavirus pandemic to concerns, related to global (as well as purely American) political risks, which traditionally make precious metals a very attractive investment.

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It is worth recalling that as early as May 25, the news came about that for some reason, despite the seemingly successful fight against the economic crisis by the Federal Reserve and its dollar printing press, such reputable American banks as JPMorgan and Goldman Sachs want to recommend their clients to invest in gold instead of dollars.

Against this background, some Russian economists and experts looked quite strange, who persistently promoted the thesis in the Russian info space that gold and other monetary metals are no longer protective assets. They claim that Russia is now allegedly in a terrible situation due to the fact that there is a lot of gold and relatively few dollar instruments in our country’s foreign exchange reserves, a situation caused by the risks of further sanctions.

Experience has shown a completely different picture. At the moment, the supporters of investment and savings into gold happen to be right, and it should be noted that among those who prefer gold to “green back”, there is a variety of investors, ranging from American JPMorgan and Goldman Sachs banks, continuing with the Central banks of Russia and Hungary and ending with billionaire financiers as Jim Rogers and Paul Tudor Jones.

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Bloomberg notes that the so-called smart money, as the financial markets traditionally call funds and investors with large wallets and the most accurate information, now continue to prefer gold, despite the seemingly excellent results of the American stock market, which in theory should have distracted them from spending money buying gold bars.

US billionaires are hastily exchanging dollars for gold

Analyzing the results of a survey of sovereign investment funds and Central banks, which was conducted by the financial giant Invesco (the company itself manages assets of about one trillion dollars), Bloomberg journalists came across an interesting contrast between the ratio of this smart money to financial assets and precious metal.

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One can compare the distrust to stocks against the growing enthusiasm for gold. The change in the price of gold this year was impressive. Gold bugs applaud the precious metal, considering it a kind of insurance policy against financial manipulation by monetary authorities, which will ignite rampant inflation in the not very distant future. Skeptics ridicule gold, considering it a “useless stone”. However, as the Invesco survey shows, Central banks have invested a lot in gold in recent years. In addition, this interest has a lot of room to grow. According to the Invesco report, about 18 percent of Central banks plan to increase their gold reserves next year, and 23 percent of sovereign funds intend to increase their investments in gold.

Despite the fact that financial markets are highly volatile in an environment of high uncertainty, prices of any asset, including precious metals, can fluctuate sharply and in an unpredictable direction. Some representatives of major financial institutions point out that the factors contributing to long-term price growth have not gone away.

George Gero, managing Director of RBC Wealth Management (asset management division of the Royal Bank of Canada), told the MarketWatch that the increase in gold prices “is caused by a perfect storm of pandemic headlines, a soft dollar and interest rates against the backdrop of rising global economic stimulus.”

He also believes that the cycle of rising gold prices may last longer than normal cycles, as the pandemic affects Europe, South America and Asia, as well as the United States.

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It is noteworthy that the narrative has changed: if in the past any global crisis and accompanying instability in financial markets, as well as the growth of various economic risks provoked a mass “flight to the dollar”, now the situation looks completely different.

If one looks at the exchange rate of the dollar against other world currencies, including the Euro and the Swiss franc, you can see that the US currency is at or near Covid lows. It turns out that investors mostly “run out of the dollar” and choose other safe havens for their capital. Now in the American media, this unusual phenomenon is usually attributed to the fact that the United States could not effectively cope with the coronavirus epidemic - and this is a valid yet absolutely insufficient explanation of the situation.

For a more complete picture, it should be taken into account that until recently, the ironclad political stability of the United States (in the sense of confidence that America is governed by the same “deep state”, regardless of the name of the President) provided additional stability of the dollar itself and contributed to its attractiveness.

Now the United States is in a sluggish civil war or “low-intensity civil war”, and the Federal center has to use its own law enforcement agencies to restore order in rebellious cities like Portland or Atlanta, not to mention the fact that after the presidential election, this civil war may well become truly bloody and large-scale.

Against this background, the actions of billionaires who receive gold bars for any amount of money, exchanging their dollars for them, look like a very far-sighted decision, hinting at many political risks that journalists, analysts and fans of everything American have yet to comprehend.

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