Abacus | It’s time to ditch the crashing US dollar and buy groceries with gold. Here’s how

Name: Gold loses its shine in India as Covid-19 pandemic keeps sales down and shops closed
Uploaded: 2020-08-17T01:00:09.000Z
Duration: 2 min 9 s
Description: Gold loses its shine in India as Covid-19 pandemic keeps sales down and shops closed

Investors are driving gold prices to all-time highs as they seek a safe haven from a falling dollar and the coronavirus

Fintech advances are already making it possible to save and spend physical gold on a card

Reading Time:5 minutes

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It’s time to get your hands on some gold. Photo: Bloomberg

Neil Newman

Published: 9:00am, 17 Aug 2020Updated: 5:23pm, 17 Aug 2020

THE BIGGER THEY ARE, THE HARDER THEY FALL

I was having a beer the other week with an esteemed former colleague and superb commodities commentator, Tom Holland, who was saying that he kept hearing from people thinking the US dollar would “crash”, and that he thought they might be right.

02:09

Gold loses its shine in India as Covid-19 pandemic keeps sales down and shops closed

For the past four years at least, currency analysts and commentators were saying the US dollar was too strong and would correct. The same would go for the Hong Kong dollar, with the Hong Kong Monetary Authority’s peg in place. And indeed, if you compare it with the sterling or the euro, the US dollar is strong. But, as Tom pointed out, what would it crash against? Sterling? Unlikely, with the British economy in its present state. The euro? No, for the same reason. The Japanese yen? Also unlikely, as it seems to reliably trade in a ¥105-¥110 range against the dollar – and even if it did, would anyone but the Americans care? Probably not. The more likely case would be for the dollar to generally decline against all the major currencies, and of course take the Hong Kong dollar with it. I suggested to Tom that a sharp dollar decline may already have occurred, but that it happened against gold.

People sometimes forget that gold is not just luxury jewellery and fancy coins, but that it’s traded just like a currency. And like a currency it is freely convertible into other major currencies, meaning the US dollar can fall in value against gold just as it can against any other currency. Now that an ounce of the precious stuff has marked new highs over US$2,000 to the dollar, perhaps it has already done so to a degree.

01:32

Indian man wears US$4,000 gold face mask to protect from coronavirus

GOLD, REAL AND VIRTUAL

Gold differs from other physical stores of value, like the diamonds in your safe or the Rolexes under your bed, in that there is price discovery for all market players. Whereas diamond prices are essentially dictated by De Beers, and the price of Rolex watches by their maker – and they go up each year.

You can also buy virtual gold (and silver) through futures, ETFs (exchange-traded funds) or derivative-laden funds, but this can be risky since you’re not always buying real gold and that actually belongs to the fund or the derivatives product issuer.

According to the world gold council, Covid-19 hit the demand for physical gold, falling sharply in H1 2020 by -17 per cent for bars and coins and -46 per cent in jewellery year-on-year.

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