How the gold price could double overnight in a major US dollar devaluation crisis
Monday, 7 October 2013
With the US Government shutdown last week weakening the US dollar across the board in global currency markets it is only too easy to read the relatively lacklustre performance of gold wrongly. For in a major US dollar devaluation crisis, like the one that would follow a failure to raise the debt ceiling on October 17th, gold would be king.
It’s a scenario played out perfectly in the penultimate chapter of hedge fund manager Jim Rickards book, ‘Currency Wars: The Making of the Next Global Crisis’. He envisages a series of ‘black swan’ events that trigger a loss of confidence in the US dollar precipitating a rush to get out of the greenback.
The last issue of our sister ArabianMoney investment newsletter has the full story (subscribe here). It ends with a ‘tsunami’ of dollar selling by traders in a mass panic and a switch to safe haven assets. Then the Fed responds with massive bond buying to force back the wave of selling.
However, the crucial difference between this crash and others is that the market then questions the Fed’s staying power and the dollar collapse continues. It is at this point that gold doubles in price overnight.