Daily Gains Letter

reserve currency


How Long Until the U.S. Dollar Loses Its Reserve Currency Status?

By for Daily Gains Letter | Oct 22, 2013

U.S. Dollar LosesAs Congress has come to a decision about the debt ceiling and kicked the can a few months down the road, I hear a significant amount of noise about the U.S. dollar losing its reserve currency status.

With this, I ask: could this really happen anytime soon?

Before coming to any conclusions, let’s dive into the basics. A reserve currency is the currency that is commonly used in the global economy; central banks keep it in their foreign exchange reserves and businesses do international transactions with it. One of the other characteristics of the reserve currency is that it is thought to be able to remain strong and stable over time. Currently, the U.S. dollar holds reserve currency status.

So what’s next?

You see, over the past few years, and especially since the financial crisis, the fundamentals of the U.S. dollar have gone downhill. The U.S. dollar is losing its stability and strength; for example, look at the long-term chart below of the U.S. dollar compared to other currencies in the global economy. You will see there’s a clear downtrend.

US Dollar Index Chart

 Chart courtesy of www.StockCharts.com

But this is just the picture of what has happened in the past. Going forward, the fundamentals are deteriorating further, and the speed at which it’s happening is picking up the pace as well.

To begin with, we have increasing national debt. It’s not very commonly said in the mainstream, but the U.S. government has the most debt, in nominal terms, than any other country in the global economy. And after Congress came to a consensus, it pretty much promised it would increase further—we will probably … Read More


Debt Ceiling Debates Pushing Central Banks Toward Financial Independence

By for Daily Gains Letter | Oct 10, 2013

Financial IndependenceI realize gold is out of favor right now, but there are just too many technical and fundamental indicators pointing to the upside. With the yellow precious metal currently trading near a three-year-plus low, one has to wonder if now is a good time to get involved.

While gold prices recently dipped below the 50-day moving average, they have been finding support on the back of the U.S. government shutdown and impending debt ceiling showdown.

Gold prices were up earlier this week as the U.S. government shutdown barreled into its second week with no end in sight. Astute investors have turned their backs on the U.S. dollar in favor of the yellow precious metal, a global, borderless currency that acts as a store of value.

Granted, Federal Reserve chairman Ben Bernanke claims he doesn’t understand gold prices. But that hasn’t prevented other central banks around the world from adding it to their coffers.

Central banks, which own roughly 18% of the world’s gold supply, are expected to increase their reserves of the precious metal in 2013 by as much as 350 tons, valued at about $15.0 billion. In 2012, central banks from around the world purchased 535 tons of the yellow precious metal, the most since 1964.

Gold may be trading down more than 20% year-to-date, but between July and September, it posted its strongest quarterly gains in a year. Why is the precious metal re-emerging? Oddly enough, it has nothing to do with the Federal Reserve’s $85.0-billion-per -month monetary policy; rather, it’s the idea that the world’s strongest economy and holder of the reserve currency could default on its … Read More