Every year the value of the U.S. dollar falls. And for every 1% drop of the dollar, gold sees an average gain of 1.9% and 3.3% for silver.
“This is really a dollar story,” said former chair of Morgan Stanley and economist Stephen Roach, “If the depreciation of the dollar continues, you could see the continued benefit of investing in silver.”
One of the factors that have accelerated the decline of the dollar is none other than the COVID-19 pandemic. Since last March the dollar is at its lowest level since early 2018, down 12% compared to America’s major trading partners. Economists and investors are predicting that this is only the beginning and we may be seeing a 35% decline in the dollar’s value within the first year of President Joe Biden’s term.
There are several reasons why the dollar is likely to continue it’s freefall. The first being the growing national and individual debt in our nation. Although the U.S. account deficit was already at an all-time high before the pandemic, the fiscal stimulus, bankruptcies, impact of historical unemployment rates, and defaulting on bills and loans as a result. Our debt is reaching a point where it can never be paid off, all while our new President promises another $1.9 trillion stimulus plan and student loan forgiveness. This comes after the $2.2 trillion CARES Act plunged second-quarter domestic savings along with $900 billion signed into law in December 2020.
The second is the rise of the Yuan. The Chinese economy has bounced back from it’s initial COVID-19 panic after enforcing strict and unconventional measures to slow the spread of the virus. China also produces much of the U.S.’s imported products and has the largest store of physical gold. Behind China is Russia, Australia, and then the U.S. The U.S. once held the largest reserve of physical gold, abandoned the gold standard in 1971, and now sits in fourth place.
The third is the government’s past and expected response to the state of the U.S. dollar. Without consideration for the growing debt and national deficit, the federal reserve continues to print more and more money to meet demands. They do this with the knowledge that with every dollar that is printed, the value drops and inflation rises. Even announcing that there will be at least a 2% inflation rate for the next ten years.
One good news is that those already invested in precious metals will benefit greatly. Silver will only benefit from a declining currency and gold stands the test of time—its value consistently growing exponentially. Over the last week, we saw tremendous growth in the silver market. Dealers were unable to meet the demand for coins and bullions and had to halt their selling before the markets opened. Silver stocks and mining companies, most notably SLV, saw an 8-year high Monday. Saxo Bank has also recently projected silver to soar to $50 an ounce in 2021, which is more than double within the next year. Peter Schiff, famous stockbroker and CEO of Euro Pacific Capital Inc. predicts that once silver reaches the $50 mark, it will soar.
On the other hand, gold will also be seeing a boost over the next year. Bank of America Corporation has raised their 18-month gold-price target to $3,000 an ounce in a report titled, “The Fed can’t print gold.” In the report analysts Francisco Blanch and Michael Widmer stated, “As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure, investors will aim for gold.”
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