As cryptocurrency continues to collapse, other investments are soon to follow, leading to the inevitable crash of the American dollar. Now is the perfect time for people to invest in precious metals like gold.
This is according to financial analyst and precious metals expert David Morgan, who talked about the “everything sell-off” on an episode of his podcast, “The Morgan Report.” (Related: Bitcoin price briefly falls below $26,000 as crypto sell-off erases more than $200 billion from the market.)
“I will admit that the metals have not held up well. Everything is down: real estate, stocks, bonds, cryptos. You name it, everything’s getting hit,” explained Morgan. He added that the game on the financial market now is to invest in something that will lose the least and come out better in the end.
Morgan used the Great Recession of 2008 as an example. After the crash, the world entered a period of economic slowdown. During this time, gold rose considerably. In 2008 alone, gold prices increased by 5.6 percent. In 2009 and 2010, its price surged by 23.4 percent and 29.5 percent, respectively.
Gold prices are nearing a four-month low in the U.S. as of Monday, May 16. Gold futures are currently at around $1,804, a drop of $4. As Morgan himself admits, one of the primary causes driving gold’s current weakness was the current strength of the U.S. dollar.
This, coupled with concerns of increased interest rates from the Federal Reserve, has driven away some of gold’s demands, leading to the market’s current low.
“Dollar is rallying as things potentially look negative in the U.S., which is hurting gold. Also, the market is realizing the likelihood of seeing pretty aggressive interest rate increases,” said Bart Melek, head of commodity strategies for Canadian investment bank TD Securities.
Gold is notable for its high sensitivity to the Fed raising its interest rates, which increases the opportunity cost of holding on to non-yielding bullion. But gold is also an excellent hedge against inflation and a safe investment to purchase during times of economic turmoil.
“However, gold is holding relatively better when compared to the industrial precious metals, the demand for which will likely take a catastrophic hit once the U.S. enters a recession,” said Melek.
While other analysts don’t expect gold prices to begin gaining until after the summer, it is still a good idea to invest in gold soon as the dollar will likely experience a downward trend in the latter half of the year.
Bipan Rai, North America head of FX strategy of CIBC Capital Market, said several factors have aligned to support the strength of the dollar at least for the next few months, including the lack of risk involved in investing in the dollar and the support it has gained from the Fed’s upcoming interest rate hike.
But Rai also noted that for the longer term, he sees the dollar declining in value, if not outright collapsing, simply because its current momentum cannot be maintained.
“Several factors justify holding gold for many mainstream investors, which will limit the scale of outflows in the coming months,” noted the analyst at precious metals research and consulting firm Metals Focus. “Even following the recent sell-offs, equity valuations are still high by historical standards. All these factors should encourage institutional investors to retain their existing gold positions as a hedge against uncertainties. This, in turn, may prevent a heavy sell-off in the gold market.”
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Watch this episode of “The Morgan Report” with financial expert David Morgan as he talks about the crash of cryptocurrency, the U.S. dollar and the case for investing in gold.
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