Weak dollar drives gold, silver and platinum to record highs

The financial markets are reacting nervously to new political tensions in the United States. While the dollar is under pressure, investors are flocking to traditional securities. What can we expect in the near future?

Precious metals explode

The gold price rose this week to a new record high of more than $4,058 per ounce (about 31 grams). With its strong performance, gold is taking the entire precious metals segment with it. Investors are also fleeing to silver, platinum and palladium amid fears that President Trump’s economic policies will further weaken the US dollar.

Platinum is currently the strongest climber of all precious metals. It resembles silver and is widely used in cars, medical equipment, as well as jewelry. Since the beginning of this year, platinum has increased by no less than 84.4 percent.

Silver follows next with an increase of almost 72 percent over the same period. Today, the metal reached a new all-time high of $50 per ounce for the first time since 2011.

Palladium also rose sharply. The precious metal has industrial applications, including in electronics, but is also used in jewelry. Since the beginning of this year, the price has increased by 61 percent.

Panic about the dollar

There are several reasons why the dollar is losing value. First, there is President Trump’s unorthodox policies. His high import duties are causing rising tensions, which is damaging confidence in the American economy. And therefore also in the dollar.

In addition, there is high pressure for the central bank (Federal Reserve) to lower interest rates, partly due to the weak labor market. If the Fed cuts interest rates, U.S. Treasury yields will fall. Investors then look for alternatives with a higher return, for example in shares, crypto or precious metals.

There seems to be a good chance that we will see another interest rate cut this month (last month was the first of this year). The futures market now expects a 94.6 percent chance that a cut of 25 basis points will occur.

On top of that, the US is struggling with a gigantic national debt of almost 38 trillion dollars. That sky-high debt is eroding confidence in the American currency. Investors and central banks are starting to doubt the sustainability of the policy, which is putting structural pressure on the value of the dollar.

Central banks are reinforcing this trend. For the first time in modern history, they own more gold than US government bonds. According to Reuters, gold now makes up 24 percent of their total reserves, a record.

Bitcoin follows as digital gold

The rise of precious metals also has a digital sequel. Bitcoin (BTC), often described as ‘digital gold’, rose to a new record high of over $126,000 last Monday.

At the same time, Bitcoin’s dominance in the crypto market is increasing. In mid-September it was still at 57.3 percent, but it has now risen to 59.43 percent. Bitcoin dominance indicates what percentage of the total crypto market consists of Bitcoin. Rising dominance means BTC is outperforming the rest of the market.