Gold prices are well positioned to benefit from the recent downgrade to the U.S. government’s credit rating says one analyst, who expects the precious metal to rise in tandem with the decline of the dollar.
Regular readers will know that the credit reference agency, Fitch downgraded the U.S. credit rating from AAA to AA+ due to political fractures around the debt ceiling and what it sees as fiscal uncertainty over the next three years. Willem Middelkoop, the CIO of Commodity Discovery Fund, believes this is a bellwether of things to come as it further exacerbates the ongoing issue facing the greenback: its declining popularity as the global reserve currency of choice.
While the dollar’s position as the world’s reserve has been under threat for some years now, the war in Ukraine and subsequent sanctions forced many nations to reconsider their reliance on the dollar. As a result, new allegiances are already being formed, with nations such as India, China and Brazil moving to different currencies within their trade deals.
Fitch’s decision to downgrade the American credit rating compounds this problem for the dollar. As one of the big three credit reference agencies, Fitch’s ratings carry real weight. They are the second of the three to downgrade, with S&P Global already shifting from AAA to AA+. The third agency, Moody’s has signalled that there is a risk its outlook will also be downgraded.
Collectively, that waning status, plus recent unrest in the bonds market, puts the gold bulls on the cusp of a real opportunity says Middelkoop. “The bond market is always right. It is telling the story that the system is breaking down. The U.S. has a problem that they are clearly never going to fix. A growing number of nations no longer support the dollar system, and I think because of that the government will find it difficult to find enough buyers for U.S. Treasures. We could see the Fed step in soon and that will be interesting for gold.”
Couple this with the renewed central bank demand for gold, which we have begun to see play out over the last ten months, and it’s fair to say all indicators point to a renewed role for gold on the global stage. Position your portfolio to benefit now.
