The U.S. dollar and yen are under pressure again today while gold and silver have taken breathers after yesterday’s gains (see table). Rather than gold and silver rising in price, we are seeing the continual devaluation of the U.S. dollar, the yen and all fiat currencies and thus their prices falling against the precious metals.
Incredibly, the dollar has lost 7.5% of its value in less than 3 months (since January 7th 2011) and more than 17% in just 8 months since August 2010. Hence the nominal record highs in gold and silver. The volatility and sharp falls in the dollar are leading to deepening inflation throughout the world (as seen in the UK inflation rate of 4.4% today).
Thus, the dollar’s safe haven status is being increasingly questioned. Many market participants are worried because the dollar continues to fall despite the real risks of a recurrence of the Eurozone sovereign debt crisis, a wider military conflict in North Africa and the Middle East and a nuclear catastrophe in Japan.
As the world gradually rejects the dollar as the reserve currency of the world there is the real risk of a dollar crisis. Should the dollar fall to below 71 on the US Dollar Index (see charts), there could be a wholesale liquidation of the dollar. This could feed on itself and lead to a currency crash as was seen with the British pound in 1992.
The monetary and fiscal position of the U.S. today is many times worse than that of the UK in 1992 which makes this risk very real.
As the world gradually rejects the dollar as the reserve currency of the world there is the real risk of a dollar crisis. Should the dollar fall to below 71 on the US Dollar Index (see charts), there could be a wholesale liquidation of the dollar. This could feed on itself and lead to a currency crash as was seen with the British pound in 1992.
The monetary and fiscal position of the U.S. today is many times worse than that of the UK in 1992 which makes this risk very real.
George Soros was widely credited with being the man who “broke the Bank of England”. An array of hedge funds, sovereign wealth funds and central banks could very easily “break the Federal Reserve”. It may not necessarily be by design rather it may come about due to forced selling in order to protect the massive dollar holdings held by many powerful players.
A dollar crisis would not be beneficial to the euro, pound or other fiat currencies as they too would likely come under selling pressure due to competitive currency devaluations and debasement.
International equities would likely do well as investors hedge their currency risk. The very small gold and silver bullion markets would see an unprecedented volume of capital try to enter the market to accumulate bullion which would see prices rise dramatically.
Only much higher interest rates and a real return on deposits and interest bearing debt over inflation will prevent massive inflation. But the U.S. and the western world saturated in debt may not be able to cope with even slightly higher rates.
A dollar crisis would not be beneficial to the euro, pound or other fiat currencies as they too would likely come under selling pressure due to competitive currency devaluations and debasement.
International equities would likely do well as investors hedge their currency risk. The very small gold and silver bullion markets would see an unprecedented volume of capital try to enter the market to accumulate bullion which would see prices rise dramatically.
Only much higher interest rates and a real return on deposits and interest bearing debt over inflation will prevent massive inflation. But the U.S. and the western world saturated in debt may not be able to cope with even slightly higher rates.
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