In the past few months, the US dollar has been subjected to noticeable declines due to the federal calm in its monetary policy, but the decline in the coming period will not be due to the federal monetary policy only, as the shift towards gold accumulation and abandonment of the dollar in addition to the internal crises in America will weaken the dollar over time, to lose His ultimate power and hegemony over international transactions.
In this regard, John Paulson, founder of Paulson & Associates, said that gold will rise in value while the US dollar will fall over time. These are the hedge fund manager’s predictions for this year, the next three years, and even the next five years.
However, these blows to the dollar were not only from gold, or from countries such as China and Russia, but also from within, such as the US debt crisis that threatens the dollar’s leadership over global financial transactions.
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Hoarding gold… is just the beginning
Paulson emphasized: “There is a significant increase in demand from central banks to exchange dollars for gold, and this is just the beginning.”
“Gold will go up and the dollar will go down, so you’d be better off keeping your gold investment reserves at this point and ditch the dollar,” Paulson said in an interview.
Highlighting the trend of de-dollarization, he noted that with inflation concerns and new geopolitical tensions, gold is constantly attracting new investors.
“The dollar is still very dominant in terms of reserves and trade, but the US economy is not the strength now that it used to be,” Paulson said.
An alternative to the dollar.. gold and the yuan
“Countries do not want to rely on the dollar as much as they did in the past,” Paulson continued. It is vulnerable to depreciation against other currencies, pointing to massive money printing, fiscal spending, past quantitative easing and inflation.
“If you had a dollar and 9% inflation, this year you lost 9% of your money; and interest rates were nowhere close to making up for that loss. This is driving investors and central banks around the world to look for an alternative reserve currency.”
Gold is a legitimate alternative to dollars and other fiat money. And as fear of sanctions grows, countries like China realize that US reserves can be frozen. And if the dollar collapses, this will strengthen China’s position as the largest competitor to the United States for global influence, and although it is likely to replace the dollar as the main currency in the world, this means that the Chinese yuan will move to second place.
China’s position internationally will be strengthened with a shift to an international currency, as China works with other BRICS countries (Brazil, Russia, and India) to accept the yuan as a global unit of account. With all three countries already resenting the economic and political dominance of the United States, a US default would support this effort.
Nouriel Roubini, Chief Economist at Atlas Capital Team known as Dr. Doom, confirmed that the unipolar system will end, along with the end of the hegemony soon.
“It poses a threat to the dominance of the US dollar,” says Dr. Doom. While predicting the emergence of a bipolar currency system.
China boosts its purchases of gold
According to the latest data announced by the World Gold Council published on Wednesday, China’s gold imports rebounded strongly during the second half of 2022, with the People’s Republic of China’s imports of the yellow metal recording the highest level since 2018.
In this regard, the report issued by the World Gold Council stated that China’s gold imports rose by 64% on an annual basis in the past year, and on a monthly basis, China’s gold imports reached 157 million tons in the previous December.
Recent data also indicated that the total amount of gold withdrawn from the Shanghai Stock Exchange in January of this year amounted to 140 million tons, a decrease of 25% compared to the same period last year.
In this regard, it is noteworthy that the People’s Bank of China announced, earlier this month, an increase in its holdings of gold for the second month in a row.
In 2022, China bought 524 tons of gold from Switzerland, at about $33 billion, according to the Swiss Customs Service. This is the largest amount in four years. Imports of the yellow metal increased by 48% (354 tons) compared to 2021.
China’s imports of Russian gold also increased. According to the Russian Federal Customs Service, Beijing bought 6.6 tons of the precious metal from Moscow last year. The growth was 67% compared to the previous year.
The trend for gold .. and the abandonment of the dollar
“If you keep your money in fiat currencies, you run the risk, because of geopolitical events, that your reserves could be taken over,” Paulson said. “As central banks have done with Russia. China probably thinks that because they have so much of their reserves in dollars, if they get into a geopolitical row with the world Western countries around Taiwan or something else, there is a possibility that these reserves will be frozen, as they did with Russia.”
The billionaire noted that with physical gold, there are no such risks, plus there is a very good possibility that the prices of precious metal reserves will go up.
“We are at the beginning of the trends that will increase the demand for gold, and inflation and geopolitical tensions will determine the rate of gold increase. This year gold will rise against the dollar and also on a three-, five- and 10-year basis.”
The impasse of default
The debt crisis currently represents the greatest threat to the strength of the dollar, as the failure of the United States to pay its debt threatens to cause a global financial crisis and undermine the dollar, which deals a devastating blow to the American and global economy.
After Republicans regained their majority in the House of Representatives in the last election, they threatened not to allow an increase in the debt ceiling unless it was accompanied by spending cuts. This step increases the risk of the US government falling into a predicament of default.
However, the risk of debt default portends dire consequences, and in August 2021 we have a lesson, as the possibility of a default at that time led to an unprecedented downgrade of the country’s credit rating, which damaged the financial position of the United States and caused significant losses.
