Gold to benefit as U.S. dollar could drop 10% to 20% - CrossBorder Capital

Neils Christensen

Tuesday June 01, 2021 12:06

 

Kitco News

 

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(Kitco News) - The gold market has achieved some impressive milestones in the last two months, with prices pushing above $1,900 an ounce to their highest level this year. Gold's newfound momentum in the last two months has come as the U.S. dollar has lost significant traction.

The U.S. dollar index is currently trading near its lowest levels for the year as prices fall below critical support at 90 points. According to one research firm, investors should expect to see further weakness in the greenback, which will continue to benefit gold.

In a report published Tuesday, analysts at CrossBorder Capital said that they see the U.S. dollar falling 10% to 15% and wouldn't rule out an even deeper 20% correction.

"Gold, the long-established alternative unit, should gain significantly from what we expect could be at least a 10-20% fall in the U.S. dollar," the U.K.-based research firm said.

Earlier this year, the research firm reaffirmed its outlook for gold prices to push back above $2,000 an ounce. With U.S. government debt ballooning out of control, the analysts said that gold's long-term fair value is closer to $2,500 an ounce.

In the latest report, CrossBorder Capital noted that the growing debt is one of the reasons why they are bearish on the U.S. dollar.

The analysts noted that America's growing debt problem comes as foreign buyers leave the saturated marketplace.

"The U.S. dollar and U.S. Treasury securities have enjoyed the privilege of being the World's two key safe assets for years, with the U.S. currency punching at roughly twice its weight in cross-border transactions as its GDP share warrants: Are both now set to lose their status?" the analysts said. "Consider the outbreak of COVID in early 2020: then foreigners unusually dumped 'safe'U.S. Treasuries, with the off-shore private sector selling close to US$½ trillion. This matters hugely because fewer foreign holders of U.S. government bonds will potentially raise the cost of funding the swelling Federal deficit, and so put even more pressure on to the Fed to buy up more Treasuries."

Crossborder capital noted that with its expanding balance sheet, the Federal Reserve now owns more than 28% of Treasuries, surpassing the amount owned by foreign investors. Currently, foreign investors own 26.2% of U.S. debt.

Although the U.S. is still seen as a safe haven while the global economy feels the effects of the COVID-19 pandemic, the analysts noted that investors are taking a different approach than Treasuries.

"COVID Crisis spurred renewed inflows into the U.S., according to the data. However, as noted, foreigners sold Treasuries. Instead, they bought U.S. equities and corporate debt. It seems that, unlike past crises, the U.S. serves less as the 'safe'haven, but possibly as a better way to play the rebound in risk assets," the report said.

While the U.S. dollar is expected to remain the world's reserve currency, CrossBorder said that this doesn't necessarily translate into a stronger greenback.

Along with gold, the research firm said that they are also bullish on the euro, which could rise to a seven-year high.

By Neils Christensen

For Kitco News

 

nchristensen@kitco.com

www.kitco.com


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Gold to benefit as U.S. dollar could drop 10% to 20% - CrossBorder Capital (Tuesday June 01, 2021 12:06). KITCO. Retrieved June 1st, 2021, from https://www.kitco.com/news/2021-06-01/Gold-to-benefit-as-U-S-dollar-could-drop-10-to-20-CrossBorder-Capital.html

 

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