Published: 2021.07.19. Forecast: the future of gold depends on the US dollar

Forecast: the future of gold depends on the US dollar - Preview

US President Richard Nixon canceled the possibility of exchanging American dollars for gold on August 15, 1971, which led to a further gradual weakening of this currency. Inflation has been on the rise for decades, driven by the aftermath of the economic depression in the 1930s. Then the United States financed the costs of participating in World War II, which also became the impetus for further increases in prices for goods and services in the country.
It is the rise in prices for goods and services that is a direct reflection of the loss in the purchasing power of the US dollar. As a result, the price of gold in January 1980 reached a record high at that time of $ 843 per ounce, and the average price of a precious metal in January 1980 was $ 677.
It is worth recalling that the value of gold began to gain momentum in the 1970s, thus catching up with the loss of purchasing power of the US dollar. The price of the precious metal at $ 677 showed that the dollar has lost 97% of its purchasing power since the start of the Fed. Then the Fed became a new religion and managed to stop the further destruction of the American currency for a while. A new era of prosperity and economic growth has given the US dollar a new lease on life.
In subsequent years, the impact of inflation on the dollar was negligible. The strengthening of the dollar was reflected in low gold prices. By 1999, the value of one ounce of gold had dropped to $ 252, a 70% decline from its January 1980 high. But since 2001, the US dollar exchange rate on world markets began to decline. This process continued until 2008. During this time, the price of gold rose from $ 256 to $ 1,023 per ounce. The second major weakening of the dollar occurred in 2011, as a result of which the value of the precious metal rose to $ 1,896.
After the gold price reached its record in 1980, the dollar began a multi-year period of strengthening and stabilization. A modest rise in inflation between 2011 and 2016 resulted in low gold prices. During this period of time, the cost of the precious metal fell from $ 1896 to $ 1049 per ounce - this is a 45% decrease. Since then, gold has been able to set a new all-time high of $ 2,060 in 2020. But now the precious metal is trading again at $ 1800.