Gold's Gain Means End of US Dollar-Based System is Near – Expert

The price of gold soared over $2,100 per troy ounce on Monday, reaching an all-time high. What signal does this send about the US dollar's strength?

The unfolding gold price rally has prompted some economists to suggest that the yellow metal's cost above $2,000 is here to stay through 2024 due to political uncertainties, possible interest rate cuts and, probably, a weaker dollar.

The most recent hike could be triggered by a 3.1% fall in the US dollar against a basket of major six currencies since the beginning of November. The drop occurred amid growing suspicions among investors that the US Federal Reserve could cut interest rates early next year.

"First of all, I think it shows that people lose trust in the US dollar, but also in American institutions," Claudio Grass, Mises Institute ambassador and an independent precious metals advisor based out of Switzerland, told Sputnik. "On the other hand, the world is splitting apart again. And the East is shifting, understandably, away from the US dollar as an international reserve currency because it has been weaponized as a political tool. The Fed will have to reduce interest rates in the future or face a deflationary collapse."

"So the good thing when it comes to gold in these uncertain times is that it performs, of course, in an inflationary environment, but also during deflation. The main reason for this is that deflation always means the flight into quality and safety. So the best you can find is physical gold because it has no counterparty risk and is not a promise to pay, therefore it acts in the way it should act. And now it seems to break out and move to the next higher level."

Gold prices started to rise last November despite interest rate hikes, according to economic observers. The trend was apparently driven by the Ukraine conflict, Western sanctions spree, looming recession and inflation in major developed economies and, most recently, the Gaza war. The last time the precious metal saw a sudden spike was in August 2020 when it reached $2,072.49 per troy ounce.

"In the past, people thought to have found the magic formula to survive volatility in the market," explained Grass. "We know these so-called 60-40 portfolios or 60% stocks and 40% bonds. So this strategy doesn't work any longer. Gold, for example, outperformed US Treasuries by 75% since 2018. So bonds used to be defensive, and gold is a defensive asset as well.

"I expect in the future that institutional investors will also switch from government bonds to physical gold. What we are witnessing is a serious sovereign debt crisis and everyone that can think for himself will realize that government debt is the worst investment you can make. And gold will then shine again. Because we all know, gold is money, everything else is credit."

The growing popularity of gold clearly demonstrates weaknesses of the dollar-centered Bretton-Woods system of monetary management and irresponsible money-printing by major Western countries, as per the expert.

"I truly believe we are moving towards the end of the Western system dominated by the US," he said. "Look at the political idiots in the Western governments. They are destroying their own economies and their own currencies. (…) Therefore, my only advice is to exchange your paper wealth into physical gold and silver and you will survive the transition period we are in. And always remember, gold is the money of the kings. Silver is the money of the bourgeoisie. Trade, barter is the money of the farmers. And paper is the money of the servants."