Thursday, November 30, 2023

Where the U.S. Dollar Is Today – and Where Lear Capital Advises It May Be Headed

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John Hammond
John Hammond
John Hammond is the lead editor for Business News Ledger. John has been working as a freelance journalist for nearly a decade having published stories in the New York Times, The Plain Dealer, The Daily Mail and many others. Fergus is based in Detroit and covers issues affecting his city and market news.

After decades of serving as the world’s reserve currency, the U.S. dollar is now in a potentially precarious position, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals provider Lear Capital.

Not only have a number of countries pulled back on U.S. Treasury securities purchases, DeMeritt says, in lieu of physical gold assets, but the dollar is now also facing potential competition from five of the world’s largest economies — Brazil, Russia, India, China, and South Africa — which might collectively propose an alternative global currency in the future.

The notion that the five BRICS nations — which comprise 40% of the world’s population, totaling 3.2 billion people — could possibly introduce a unified currency that may someday replace the U.S. dollar as the widely regarded reserve currency, isn’t completely out of left field.

According to the new Lear Capital report, The Tipping Point, the BRICS nations have already established an entity called the New Development Bank, which may serve as a type of competitor to the International Monetary Fund. NDB plans to issue 30% of its loans in the local currency of the specific country that is borrowing funds from it — and the BRICS countries’ efforts have reportedly drawn interest from a number of nations, including Argentina, Iran, Turkey, Indonesia, and Saudi Arabia.

“People have to be aware that countries are trying to get away from the U.S. dollar and giving themselves more flexibility to be able to transact deals without having to use the dollar,” Kevin DeMeritt says.

Could the U.S. Dollar Possibly Lose Its Reserve Status?

U.S. currency’s now somewhat-uncertain relationship with the global economy stems from a number of prior economic moves, including the government’s decision to abandon the gold standard years ago.

After World War II, the U.S. dollar became the world’s dominant reserve currency, due in part to its status as a gold-backed currency, with strong support from U.S. leadership.

Ending paper money redemption policies in 1971 thrust the U.S. into a fiat money system, making the dollar’s value heavily dependent on the confidence the world has at any given time in the current U.S. leadership and the country’s ability to remain economically viable.

“Fiat currency is a relatively new concept,” Rachel Mills, a Lear Capital global financial research specialist and author of The Tipping Point, said in a statement. “On the other hand, precious metals have had a critical role in currency and finance for 8,000 years. There is no logical reason to believe the world’s patience and trust in the U.S. dollar will last indefinitely.”

Recent politically motivated actions — including printing money at will and levying sanctions against Russia after it invaded Ukraine — have interjected additional concerns, according to Kevin DeMeritt, who says overall economic uncertainty has helped encourage central banks to invest in gold. India’s gold reserves, for instance, now total 881.85 tonnes; Russia has amassed 2,535.32.

Predicting stock market activity can involve a large margin of error; it can also be difficult to ensure that other investments, such as fine art, will appreciate as much as anticipated.

Both outcomes depend heavily on an amount of future demand that, as of now, is unknown — whereas recent gold-purchasing activity, coupled with its past performance and current U.S. monetary production policies, may indicate we’ll see a continued interest in gold.

Since 1970, gold’s price has increased from approximately $35 an ounce to $1,982. Gold has even performed well during economic downturns like recessions. Prices have, in fact, generally risen during the past 20 years, according to National Mining Association data.

“The central banks have been piling into gold over the past four or five years because we’ve printed up so much money, and now there’s a distrust,” Kevin DeMeritt explains. “[Investors wonder,] are we able to service the debt here in the United States? When you’ve printed $22 trillion since 2008, it’s a cause for concern — so you need to look for the asset that’s going to offset the volatility from some of the other areas.”

What To Expect — and How To Prepare

If a gold-backed BRICS currency were to be introduced, it could potentially drive prices for the precious metal higher — while simultaneously weakening the dollar.

As a result, Americans could experience a number of possibly detrimental effects, according to Kevin DeMeritt, ranging from price inflation to larger trade deficits and reduced saving capabilities.

“If we lost the reserve currency status, people in the United States would have a gigantic wake-up call because things would become much, much more volatile, with oil prices and everything else,” the Lear Capital founder states. “It’s denominated in somebody else’s currency; that currency goes up and down, [and] we would pay higher product prices.”

While there’s no absolute certainty that would happen — or clear idea when, if it were to occur — concerned investors can start preparing now to offset those types of dollar-related issues, and other potential economic catastrophes, by diversifying their portfolio, potentially with the addition of physical precious metal assets like gold and silver coins and bars.

Investors are able to add funds from a savings or checking account to a self-directed individual retirement account; alternatively, they can roll over a number of retirement accounts — including a Roth, SEP or SIMPLE IRA; a 401(k); and other varieties — into the self-directed IRA, and use the funds to purchase physical precious metal assets that possess a certain purity level.

At any point, you’re then able to also add items to the account — or sell some to adjust your holdings.

“I can’t tell you when the stock market or home values are going to fall; what we’re seeing in Ukraine could happen in Taiwan — who knows?” Kevin DeMeritt says. “You need something that has that inverse relationship to those kinds of things. When they happen, it can have a devastating effect, especially if you’re retired. The asset that gives you some stability while all of those uncertainties are happening typically is gold — have a hedge on the other side that will help you in those dark days.”

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