Is the Dollar's Dominance at Risk? Gold and Bitcoin Shine BrightThe decline of the dollar has been a focal point in the market, especially after the recent BRICS summit in Kazan. However, GTC Zehui Capital argues that talk of the dollar's imminent demise is exaggerated, as its share in global payments has just reached its highest level in 12 years
Is the Dollar's Dominance at Risk? Gold and Bitcoin Shine Bright
The decline of the dollar has been a focal point in the market, especially after the recent BRICS summit in Kazan. However, GTC Zehui Capital argues that talk of the dollar's imminent demise is exaggerated, as its share in global payments has just reached its highest level in 12 years. Nevertheless, the dollar's dominance is facing increasing challenges as BRICS countries seek alternatives to reduce their reliance on the greenback.
Data shows that over the past two years, the dollar's usage in international payment transactions has jumped by 9 percentage points, while the euros share has dropped to its lowest level in a decade. Despite this, French economist Jacques Sapir predicts that BRICS countries could shift 19.5% to 25.5% of global trade away from dollar/euro settlements within the next five years.
GTC Zehui Capital believes the dollar remains the worlds dominant currency and is far ahead of the pack. However, changes in trade agreements and monetary unions could gradually challenge its dominance. Regarding the decline in the use of the euro, GTC Zehui Capital argues that it likely reflects economic stagnation, political instability in parts of Europe, and the complexity of managing a multi-country currency.
From a macro perspective, Spencer Hakimian, founder of TolouCapitalManagement, emphasizes that all fiat currencies are on a downward path in an era of constant money printing by central banks. While the dollar currently reigns supreme as the fiat currency king, its position is undeniably precarious amid the worsening US debt situation and rising US Treasury yields.
After the Feds pivot, the 10-year Treasury yield climbed to its highest level since July 5, rising by 70 basis points since the Fed cut rates. Mortgage rates have soared above 7.0%, and mortgage demand is expected to hit a 30-year low. Meanwhile, the US reported its third-largest budget deficit in history, clocking in at $1.83 trillion for the 2024 fiscal year ending September 30, or 6.4% of GDP. In other words, the government is borrowing $5 billion each day.
Perhaps against this backdrop, gold prices have been hitting record highs, and Bitcoin is breaking into new territory. GTC Zehui Capital states that last week, gold funds saw inflows of approximately $3 billion, the second-highest on record and more than triple the average amount in recent weeks. The influx of money has driven up the gold price, which is up 33% year-to-date and on track for its best year since 1979. As a result, golds current market capitalization has hit a new high of $18.4 trillion. At the same time, central bank gold reserves as a percentage of total foreign exchange reserves have reached 12.1%, the highest level in over 30 years.
Bitcoin prices are also surging: this year, Bitcoin is up over 60% and is on track to be one of the top-performing assets in 2024. The cryptocurrency market has added $1.5 trillion in market value in the past 12 months. The stock market is also reflecting the fact that traders are doing their best to avoid holding dollars.
GTC Zehui Capital says this is the most resilient stock market in history: the S&P 500 has been above its 200-day moving average for 247 consecutive trading days, the third-longest streak in eight years. However, market concentration is also rising, and the current situation is nearing that of the Great Depression. The market capitalization of the largest US stocks is now about 750 times higher than that of 75% of stocks, nearing the highest levels since 1932.
While the dollar remains the king of fiat currencies, there is evidence suggesting that de-dollarization is on the rise, with investors increasingly favoring gold (the worlds oldest store of value) and Bitcoin (the currency of the digital age). It appears that the fiat currency system is starting to crumble, and while the dollar may be the last one standing, its dominance is facing unprecedented challenges.
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