Goldman strategists said that the fragile economic condition, with interest rate at an all-time low, and the uncertain political scenario, have added to the instability of the USD showing signs of real concerns for it to continue as the world’s reserve currency.
As the U.S. economy faces major challenges ahead with the coronavirus pandemic, the world’s strongest currency the U.S. dollar is facing the test of times. On Tuesday, American investment bank Goldman Sachs Group Inc (NYSE: GS) warned that the dollar can potentially lose its status as the world’s reserve currency.
As interest rates move to all-time lows, Goldman Sachs also wrote that there are some real concerns on the longevity of the U.S. dollar to dominate the global markets. The strategists further added that the debt level in the U.S. has moved past 80% of the country’s GDP. With the recent stimulus packages, the strategists also think that the government and Federal Reserve (Fed) would allow inflation to accelerate. The strategists wrote:
“The resulting expanded balance sheets and vast money creation spurs debasement fears. 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.”
Goldman Sachs adds that the political uncertainty with the upcoming presidential elections and the rising COVID-19 cases. The strategists say that it adds to further instability in the strength of the USD.
Goldman Sachs Bullish on Gold But Not Bitcoin
On the other hand, gold which has been a hot commodity has been the best choice by Goldman Sachs.
The banking giant wrote:
“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”.
Since the beginning of 2020, the Gold price has appreciated by nearly 33% until now. Earlier this week on Monday, the gold price hit its all-time high of $1931 per ounce. Analysts are expecting that gold will soon touch $2000 and move past $2300 over the next 12 months.
On the other hand, the popularly called ‘Digital Gold’ aka Bitcoin hasn’t been among Goldman’s favorites. Back in May 2020, Goldman smashed Bitcoin saying its not an asset class. The bank said:
“Cryptocurrencies including Bitcoin are not an asset class,” said the firm. Cryptocurrencies “do not show evidence of hedging inflation,” nor do they “generate any earnings through exposure to economic growth.”
However, Goldman’s remarks have deterred Bitcoin investors so far. In fact, BTC is showing good strength this week. Over the last week, its price has surged more than 20%. At press time, Bitcoin is trading $11,045 with a market cap of over $203 billion and crossing its crucial resistance.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.