The growing concern over inflation in the United States could mean the US dollar is in danger of losing its dominant role on the global market, Goldman Sachs has warned. It is bullish on safe-haven gold, which has surged recently.
“Real concerns around the longevity of the US dollar as a reserve currency have started to emerge,” the bank’s strategists said.
According to them, with the debt level in the US now having exceeded 80 percent of the country’s gross domestic product, the government and the Federal Reserve may allow inflation to accelerate.
“The resulting expanded balance sheets and vast money creation spurs debasement fears,” they said, adding that this creates “a greater likelihood that at some time in the future, after economic activity has normalized, there will be incentives for central banks and governments to allow inflation to drift higher to reduce the accumulated debt burden.”
Among other factors that could lead to an end of the dollar’s reign, the strategists named increased political uncertainty and growing concerns over another coronavirus infection spike.
At the same time, the strategists have pointed out the record-breaking rally of gold, saying: “Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows.”
Gold is up over seven percent over the past month, while the US Dollar Index dropped 3.7 percent.
Goldman has raised its 12-month forecast for gold to $2,300 an ounce from $2,000 an ounce previously. It sees US real interest rates continuing to drift lower, boosting gold further. The price of the yellow metal has climbed to $1,974 during trading on Wednesday.
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