Are we facing a dollar crash? And if so, how much cash (or gold) to stash?

19th Jun '20 by Retireyoung

10 comments 896 reads

Hi Stockopedia Team and Users,

I have read some alarming articles recently (e.g. Stephen Roach: How the Coming Crash of the Dollar will Unfold, Bloomberg and The Economist: The State-budget train crash) all pointing to a potential severe crash of the dollar value, perhaps catalysing the next global financial crisis.

I was wondering what you think of this, how to look out for signs and how to prepare, especially given how the performance of the FTSE seems to be very dependent on what is going on across the pond, and probably a similar situation facing the (not so) Great British Pound - i.e. spiraling debt, crazy money printing and decreasing public revenues. Clearly, there are many further implications on the global economy, trade, other currencies, and probably every single business we invest in.

In light of this, what are prudent risk management strategies one can adopt, and how can one prepare to capitalise when the crash comes? I am almost 100% in stocks at the moment, probably due to some recent FOMO. I have approx 20% is in gold miners. Is gold the only safe haven? What about Crypto currencies?

Would be very grateful for your views.

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dmjram

19th Jun '20

The honest answer is no one has a clue what will happen to the $ or any other currency. As fiat scrips are all relative values, for the dollar to crash other currencies would have to become more popular - is that likely for the euro/yuan/pound/yen etc. Again, haven't got a clue.

Is inflation a greater risk than 6 months ago?
Yes, because supply chains are impacted and there has been huge monetary and fiscal easing.
Will that crash the dollar? Definitely lead to higher prices in consumer goods?
No one knows. It's more likely now but not a certainty. Remember we were told by many monetarists back in 2008 that all that money creation would lead to Weimaresque inflation...it didn't.

If you're at risk from higher inflation e.g. reliant on fixed coupons for income then consider what you can do to hedge it maybe. If you've got an indexed linked income and lots of fixed debt, party time might be round the corner.

As a wise man (JK Galbraith) said:

"Forecasting is very difficult, especially when its about the future"

and

"Forecasting exists to make astrology looks respectable"

Momoko Miyamoto

Crypto-currency is ponzi-fraud and gold could easily crash if/when economic recovery takes off (price of Gold now is similar to the peak during last crisis and was low in the interim). Assets which pay inflation linked return and are expensive to build look good to me, e.g. infrastructure and real estate.

jonesj

Whatever currency you have, it's only of value if people have trust & confidence in it.

Now at the best end of the scale, we have gold which has been a store of value for thousands of years & I very much doubt that will change during my life. If may go up and down, but gold will not end up like the Zimbabwe dollar.

Currencies seem higher risk, due to QE.

Cryptocurrencies seem even higher risk & all confidence could be lost in a number of ways. I'll give it 200 years before even thinking about investing here.

mojomogoz

If the USD truly crashes then owning equities will be one of your best protections. Commodities also. Just don't get freaked out by discombobulating volatility nor have leveraged positions.

Macro

typos corrected!

Alphaflight

23rd Jun '20

Every fiat currency in history (unbacked by a precious metal) has eventually gone to its intrinsic value of zero I'm afraid. Note that BRICS countries such as China and Russia are very aggressively accumulating gold. China is producing more gold than any other nation in fact. Central banks hold gold because they know it is the only true money, they don't hold bitcoin or any of the other hundreds of thousands of cryptocurrencies. Chinese gold companies continue to pursue and acquire gold mining companies aggressively. As the below article suggests, there certainly seems to be something strategic going on behind the scenes:

https://www.zerohedge.com/commodities/chinese-gold-miners-continue-gobble-gold-companies

We won't be mining much gold after circa 2030:

https://www.visualcapitalist.com/forecast-when-well-run-out-of-each-metal/

andrewdb

For me - and I am no expert, it depends...
1 Where you live
If you live in a v.v. big country where there is a lot of internal trade (the US/India) and the rest of the world just stopped, I am not sure you would notice much.
If you live in a country that depends on trade (the UK / Switzerland / HK ) things may be different.
There is a sliding scale here. some bits of Coastal china would be devastated, a lot of inland China would barely notice.
2 How much you trust the govt - i do not mean in terms of inflation, I mean in terms of literally taking away your money.
Eurpoe, the US, quite a lot
Russia, China, not so much.
... and that is why (IMO) the chinese and russians are so keen on gold and foreign assets.

FreakNomad

24th Jun '20

The USD may or may not crash. Other currencies may crash first, though.

The USD is the world's reserve currency and its main trading currency. Every country needs to hold dollars. No other currency is as important in world trade so it is more likely that other currencies crash when their governments can't roll over their USD debt or, for some other reason, their currency is not convertible to USD. This is true of 3rd world currencies, but also of GBP. EUR may crash for other reasons - instability in the Euro-zone.

The thing to watch for signs where this is going, is how much trading will be done in other currencies e.g. renimbi, rouble etc.?

Having said that, the West is bust and debt write-offs are inevitable. It's only a matter of when and in what form they take.

In the meantime, I'd rather hold USD than other fiat currencies.

FYI:

If Gold or Silver are remoneterized right now (real time) they are worth (as I type this):

Dollar to Gold Ratio: $30,743 per troy ounce (i.e. About 17.5 times the current spot price).
Dollar to Silver Ratio: $3,707 per troy ounce (i.e. Over 200 times the current spot price).

https://www.usdebtclock.org/gold-precious-metals.html

To summarize

So if Silver was remonetized right now it would be worth over 200 times its current spot price (unlikely I know). Gold would be worth about 17.5 times its current spot price if they have to remoneterize it and go back to the pre 1971 system (i.e. a gold standard), quite likely in my opinion (unless they manage to convince the muggles to use some sort of dodgy central bank digital cryptocrap currency that is!).

Are we facing a dollar crash? And if so, how much cash (or gold) to stash?

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Retireyoung

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