by Jason
Over the past year, the price of gold has behaved unusually, reaching new highs while seeming to break away from its traditional influencers such as interest rates, inflation, and the dollar. Its steady increase is also surprising given the volatility in global geopolitics. Gold’s enduring appeal goes beyond economics or political events. It reflects a growing behavioral shift among countries like China and India that merits more attention from us.
This past year, gold prices soared from $1985 USD to today's $2720 USD (as of October 22, 2024). This represents a gain of over 37%. Unlike other assets, this rise has been steady, with even minor dips attracting buyers, despite shifts in policy rates, volatile US yields, falling inflation, and currency fluctuations. Some may see gold’s performance as part of a broader asset price surge, such as housing market prices or index funds. Others attribute gold’s rise to the increased conflicts that have caused devastation worldwide.
Foreign central banks have been consistent buyers of gold, helping to drive its price up. These purchases suggest a desire to diversify away from the dollar, despite the US dollar reigning supreme for decades. There's also a growing rise in popularity for new payment options, such as bitcoin and other cryptocurrencies.
When you ponder why this shift is occurring, some key factors are often cited. One is a declining trust in the US’s presense on the global platform and new issues in recent years. These include the US’s use of tariffs and sanctions as weapons in recent years; along with its reduced usage of the cooperative system it helped establish decades ago. Despite sanctions, Russia has managed to continue trading and growing its economy through alternative trade and payments methods. While it's not ideal, it has allowed Russia to continue its financial transactions without the use of US dollars.
What does this mean? Well, not only are we at risk of a severe drop in the usage of the US dollar worldwide, but in cash currency altogether as we transition towards new payment systems. The financial world itself is always changing. There is no single currency or payment system ready to replace the dollar, but many are getting close. More countries & companies are participating in these alternatives.
The rise in gold’s price reflects more than just economic or other listed factors. It signals a deeper issue that could shatter the global system and weaken the US dollar's role in our financial world. Our governments should take note of this shift, and make the necessary changes now before it's too late.