The world is currently entering a particularly tumultuous time period, and that typically brings the relevancy of gold back to the fore. Indeed, CNBC has noted the large gold reserves available to sanctions-beleaguered Russia, and the impact this may have on global prices. While geopolitical events have a habit of driving gold prices up or down, there’s actually been a wider trend in investments and trading that have once again secured the relevancy of the precious metal. That starts in the power of the US dollar.
Dollar strength and gold
The US dollar has historically been tied to the price of gold, and banks and investors held large stocks of US gold coins as a peg for the value of their currency. This was reverted in the 1970s to the current fiat standard, yet, this isn’t the end of the relationship with gold and the value of the dollar. While the dollar is no longer linked to gold, The Balance notes that gold is still however linked to the dollar. Even without a distinct link between dollar and gold, this means that fluctuations in dollar price creates fluctuation in gold prices. This means that new investment trends that weaken the dollar have increased the price of gold – most interestingly, this includes cryptocurrency.
Cryptocurrency as value
While cryptocurrency has yet to ascend to a proper currency, largely due to constraints in the number of transactions that can be made on the major crypto networks in any one day, it has nevertheless been utilized by many large organizations as an asset. Value is stored in cryptocurrency today. Cryptocurrency is also used across the world in developing countries and in countries impacted by western sanctions; this has brought about fears that it will devalue the dollar, according to MarketWatch. The logic is simple behind that fear; any alternative to the dollar as a global currency will damage its relevance, and the price of gold with it.
The latest geopolitical events have upended certain aspects of the global financial order. The revocation of access to the SWIFT banking network has allowed the prospect of decentralized finance (DeFi) to become more relevant, as has it made competitor frameworks – such as China’s CIPS – more powerful in the global financial outlook. While the current conflict continues to rage on, gold will continue to glitter, according to the Economic Times. While the ultimate outcome of current events is difficult to predict, it has seen people pushed towards either new, high-tech financial instruments, like crypto, or back towards classic stores of value, like gold. The latter benefits wherever fiat currencies are devalued.
The only potential deviation in this trend will come from the value of other rare metals. There are shortages in several rare earth elements (REEs) in addition to precious metals – globally. With magnates over their supply in the USA and China able to control flow, reserves of these technologically important resources may become powerful.