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It has long been said that in times of trouble and uncertainty, investors move into gold, as a safe haven asset. This trend has been silently dying, in my opinion. The idea that gold is no longer a store of value is something that I have addressed at length in some of my earlier publications. For those who missed out, I would just like to reiterate that gold has not appreciated in dollar terms over the past 10 years. it is actually no longer able to store value over extended periods of time. In the short-term, it is often relatively stable, but can be susceptible to mild volatility. As markets have continued to bleed, investors have chosen to move into the dollar. The DXY is at a 20-year high and even though the dollar is depreciating in terms of purchasing power, other currencies are losing even more ground. Something that I have mentioned over the last year or so is that the majority of fiat currencies will ultimately collapse into the dollar. In other words, everything is falling, including the dollar. However, everything else is falling a lot faster and harder than the dollar. For immediate shelter and safety, investors are voting with their wallets, and the winner is the dollar. If you look at it from the correct perspective, it begins to make a lot of sense.
If you were an investor and you recently chose to move a significant portion of your wealth into the dollar, it would have been a great move, relatively speaking. I am a firm believer in always identifying and understanding the “relativity dynamic”. Provided, you hold dollars over the short to medium term, you are relatively safe, regardless of the loss of purchasing power. Before we continue, let’s just clarify that items don’t necessarily become more expensive, but rather the currency used to purchase them becomes weaker in its purchasing ability. If you consider that inflation is sitting at roughly 8%, it subsequently means that the dollar is losing 8% of its purchasing power over a 12-month period. Essentially, this means that if you hold dollars for two months you are going to lose roughly 3% of your “investment” or holding.
When you consider how much stocks and Crypto can plummet over a two-month period, it actually becomes a significantly attractive option. However, you do not want to be holding dollars long-term. Investors would rather sacrifice a couple of percent while they wait for this storm to pass. It’s a quick and easy flight to temporal safety. One could liken it to a flood victim finding an elevated structure away from the rushing water. A place where one can plan a way to true safety. This is all that the dollar is good for unless you are using HBD of course.
Strong Demand To Continue?
The DXY is likely to cool off but I would still anticipate a fairly strong demand to continue. In the chart below, it is quite clear how well the DXY has performed over the past few months, especially during the month of September.
As I am writing this article, the recent pump in the Crypto market has already been erased with BTC shedding more than 4% in a single hour. This is the reality of the market right now. It’s still too early to be entertaining a true reversal for stocks and Crypto. Yes, we will have numerous pumps, but they are unlikely to produce anything in terms of a reversal. As I have just mentioned in my most recent post, these volatile moves are perfect for trading, and that’s all I am prepared to do for now. However, I will continue very modest allocation via passive income models.
The strength of the DXY has simply shown us exactly where investors are willing to “park” their capital while they await calmer seas. It’s definitely not gold, which has plummeted all the way down to $1621, at the time of writing.
For gold, that’s a significant drop. The dollar has been on the front foot for some time now and I would expect continued strength until we see some “policy adjustments” from the FED. Anyway, that’s my viewpoint of what is currently unfolding in terms of the markets and the dollar. Hope you have a great weekend! Catch you next time!
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