This has been the year that momentarily stopped everyone, and “nearly” everything in its tracks, including the United States Dollar. We say nearly because one asset, in particular, saw significant growth during COVID-19’s initial outbreak.
Ray Dalio, the founder of Bridgewater, the largest hedge fund, believes that 2020 merely exposed what’s to come of the USD over the next years, but the good news is that he also believes that there is “gold in the lining.”
The U.S Dollar Index, or DXY, had been on a “healthy” 9-year run, which started around $74 and by March 2020 had reached highs over $100.
And then, just as the old market saying goes, “it takes the stairs up, and out the window for the way down.” DXY’s move from $74 to $100, a near 35% increase, swiftly began diminishing upon validation of COVID-19’s severity.
From March to September of 2020, DXY’s price fell from around $103 to $92. Nine years or 108 months to gain 35%, and six short months to lose 10% of it. As for gold, within those same six months that DXY fell, gold rallied from $1,450 up past $2,000 breaking an all-time high record.
An alarming observation that the billionaire hedge fund founder shared in a recent interview was that not only did the USD fall in value, but that other major currencies around the world actually rose against it.
Dalio believes that gold could very easily continue rallying up to $2,500 and possibly even $3,000. He pegs the weakening dollar to the Federal Reserve’s QE attempts to “dilute” the financial effects that COVID-19 was wreaking on our economy.
That, coupled with many other factors such as unemployment rates hovering around numbers 2x more significant than we saw pre-COVID and the Fed’s hints at soon to come hikes in interest rates.
From the beginning of March to the middle of June, The Fed had increased their balance sheets by $3 trillion within three months, and they don’t plan on stopping there.
In a mid-September 2020 meeting, the Federal Open Market Committee (FOMC) vocalized their goal to continue buying Treasuries and mortgage-backed securities at $80 billion of Treasuries a month and $40 billion of mortgage-backed securities in an attempt to keep money flowing into the economy.
Ray Dalio believes that this is one of the more significant fuels to the fire as investors will continue to dump their bonds as their trust in the dollar declines with its price, leaving the central bank on an endless shopping spree for unwanted bonds. And it is this which he believes will begin gold’s 50%+ price rally to $3k.
Click here to learn how thousands of Americans are protecting and diversifying their investments with precious metals like gold in these uncertain times.
