Gold price at a new high, what happens next?
In the end, it was the age-old relationship that decided it: gold’s inverse relationship with the dollar. With the dollar weakening due to uncertain economic news and a surprising pressure on oil production, we saw the price of gold reach a new high, finally reaching and exceeding the peak level of USD 2,000 per troy ounce.
At the time of writing, gold is at a record level of $2,023 per troy ounce, a level that was surely only a glimmer in the eye of a modern monetary theorist just a few years ago before the pandemic, and which must look impossible to anyone who remembers the pre-Nixon gold standard era.
There was a time when gold was so important to the American economy that President Roosevelt essentially nationalized it. Now, in terms of its overall economic weight, it is much less significant.
But where do we go from here? Are there higher peaks in this newly opened mountain range?
Unfortunately, the fog of the future continues to obscure the view ahead, but that would not be surprising.
There is at least one degree in the short term, where gold at USD 2,000 represented the psychological barrier that could not be breached.
Now it has been, the questionable money can feel comfortable flowing back and forth around that level.
To put it another way, an old and ancient taboo has been broken. We can now trade gold as high as we want. The gold bugs who were dismissed as cranks – or, to use the modern language, as conspiracy theorists – for predicting $2,000 gold ten or fifteen years ago have now been proved right.
Who will now refute the possibility that we see gold trading at $3,000?
After all, what is a dollar these days? The Saudis are reconciled with Iran by China. The Chinese currency has replaced the US dollar as the most widely used medium of exchange in Russia.
The Malaysian leader has questioned the necessity of using the US dollar in the coming years. And in the background are the truculent left-wing South American countries that have always resented US dollar hegemony. Currently, however, as a hard currency, the dollar is still unmatched.
But it is at least now possible, as with $2,000 and $3,000 gold, to imagine a world where the US dollar hegemony is challenged. If that happens, the gold price will go through the roof. At least in dollars.
But the twist, of course, will be that the key currency in which gold is valued will no longer be the dollar. It will be Yuan or Rupee or Yen or Rial. And if so, USD 3,000 may not be half as important in the future as USD 2,000 is now.
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