It may seem counter-intuitive. It may seem impossible to imagine or hyperbolic. The dollar has been there your whole life and all that time, it has been solid – more or less, apart from a few stretches of deep inflation. It is the world’s reserve currency. The money on which international trade is based. The petrodollar makes the world go round, in many ways. You may have a sense deep in your bones that because the dollar has always been there, it will always be there.
But you know the rule of thumb in finance: past performance is no guarantee of future returns. That applies to all assets, no exceptions. Not even the US dollar.
SHOULD you have all your assets in dollar denominated investments? Or should you diversify just in case?
No hysterics here.
We are going to calmly and rationally walk you through 6 charts that demonstrate factually and logically why NOW is the time for gold precisely because the future is not guaranteed for the dollar, and in fact, using simple math you can clearly see there is not only trouble ahead; there is trouble right now.
1. US Public debt
What could possibly go wrong with debt to infinity?
At the root of all this is the public debt. It has only escalated and exploded since Ronald Reagan called attention to it in the 1980’s. Lately, the dollar has been severely abused by the emergence of Modern Monetary Theory, which states (in a nutshell) that if a country runs its own printing press, it can spend as much money as it wants to, issue all the debt it needs, paper over the debt with more currency, and then tax away the inflation. Academics and economists who seriously believe this have seized the levers of power.
What could possibly go wrong?
2. Gold Price CAGR
Your gains are not as impressive as they could be…
Let’s compare gold to the broader economy by looking at compound annual growth rates (CAGR). Here you can see year to date commodities gaining just 6% to gold’s monster 31% growth! More than double the aggressive emerging markets’ gains of 13%!
Just to demonstrate that this is not a 1 year anomaly, look at the 10 year compound annual growth rate and you will still see gold beating every other category at 8.29%, while the US treasury index actually shrinks!
3. Dollar dominance fades as China rises…
The world is noticing these cracks in the foundation of the dollar and the vulnerabilities faced if you have total reliance on it. It has been said over and over that the reason the dollar is king and always will be king is because there is no alternative. Isn’t there?
In fact, the world is slowly coming up with alternatives and shifting to them. Just look at the case of the Chinese renminbi. Going back to 2010, we see just 0.3% of cross-border payments were made in renminbi to the dollar’s 83%. Today, the renminbi surpasses the dollar at 53% renminbi vs just 43% for the dollar.
China is surging and is a key part of the BRICS group of nations. (Brazil, Russia, India, China, South Africa) Those BRICS countries are actively developing alternative financial structures to the dollar. No alternative to the dollar? There might be one day. Donald Trump is nervous about it and you should be too.
4. Global Central Bank Demand
While bankers still advise clients to stay in dollars? What gives?
As the dollar declines, what are countries and their central banks demanding instead? Gold, of course. In just a few short years, central bank demand for gold has jumped from 655 trillion to 1,030 trillion and counting. What do big banks see in gold?
5. Gold spot prices
As the debt goes up, so does the price of gold.
This massive central bank demand, coupled with both institutional and individual investor demand, has been a driver of the spot price of gold.
6. The value of gold
Gold is a saving grace to retirees facing loss of purchasing power due to inflation
Perhaps the most striking chart is this one overlaying that spot price of gold with the falling purchasing power of the dollar. This is really what it is all about. Who cares if you’re a billionaire if a shopping cart full of groceries one day costs a billion dollars? This is exactly what happened in Weimar Germany in 1923! All at once, inflation went nuclear and German marks were so worthless, people were burning stacks of currency for fuel during a cold German winter!
With the US dollar, the decline in value has been more gradual, but the phenomenon is the same. We all have higher incomes and bigger bank accounts, but our lifestyles don’t improve much or actually degrade compared to when we were “poorer”.
Holding gold, on the other hand, has been a saving grace. One can easily see how the rising spot price of gold helps one keep up with inflation and maintain that overall purchasing power in spite of what we saw in chart #1.
This final chart makes the strong case for why gold is a buy and hold… and hold… and hold!
To summarize, our dollar is in trouble. It may seem unthinkable to say so, but it is true. Right now it remains the #1 global reserve currency – the currency central banks around the world hold as savings and to do business in. But no reserve currency is guaranteed to last forever, and no fiat currency has ever lasted as long as our dollar.
But the factors that led to dollar dominance are eroding. The world is increasingly becoming multi-polar and those other powers are looking for stability and reliable returns. Banks and savvy investors are looking for a firmer foundation than Modern Monetary Theory and our voracious appetite for debt can give them.
Evidence that the dollar is increasingly shaky while gold is more and more stable are easily demonstrated in the 8 charts above.
Reagan Gold Group can help you do what central banks around the world are doing – shoring up their financial position for a more stable future. Call us to learn more about gold and how an investment in precious metals can change your whole outlook and give you peace of mind. Our knowledgeable account executives are specialists in IRA rollovers as well as gold purchased for home storage. We can even send you a free home safe to keep your metals in if you qualify!
