The US Dollar may well have entered another cycle of decline against the other major currencies of the world.
This week we have a question from a reader as to how this might impact any gains in the NZ Dollar gold price:
You wanted a question, so here’s one that’s been niggling in the back of my mind for some time, yet haven’t been able to reconcile it in my mind.
Q. Assuming that in the near future that gold/silver is still priced in USD, and given the trend and the outlook for the USD is downwards and that currency pairs are a zero sum game, with the advent of a currency crisis for the USD, it means our NZD would gain in strength by the same amount as the USD decline. And assuming the price of gold/silver would rise in the advent of a crisis, would not any potential gains in the spot price of it be lost to our strengthening NZD? Or is the assumption to be that hopefully the increase in the spot would be greater than the rise in the NZD?
So in a nutshell the question was…
In a US Dollar Collapse Won’t The Rising NZ Dollar Cancel Out any Gold/Silver Gains?
We have had some similar questions over the years, although perhaps not this one specifically.
The short answer is yes we would expect that gold and silver would “gain” more than the comparative rise in the NZD/USD exchange rate.
Or put another way the NZ Dollar may “go up” against the US Dollar over a number of years – as it has done in the past. However we believe gold will “go up” more.
History also strongly supports this theory.
This is shown visually in the gold chart below. The black line is gold in NZD, the gold line is gold in USD, the blue line is the NZD/USD exchange rate.
You’ll notice the NZ Dollar has impacted the NZD gold price and has at times caused it to rise more or less than the USD gold price.
How Has Gold in NZ Dollars Performed Compared to Gold in US Dollars Since 2003?
Since June 2003 (when the data for NZD gold begins in stockcharts) gold is up 182% in NZD ($650 to $1831). While gold prices in USD is up 272% ($360 to $1340).
So gold has risen more in US dollar terms than in NZ Dollar terms.
However the price of gold in either currency has been up over the past 15 years. i.e. the overall trend is the same.
Or perhaps put more correctly, both currencies have lost value against gold over the past 15 years.
For more on this topic check out: Why You Should Ignore the USD Gold Price When Buying in New Zealand
Is it Guaranteed that the US Dollar Will Collapse Faster Than Other Fiat Currencies?
While the above is all predicated upon the US Dollar losing value faster than the NZ Dollar, there is also an argument to be made that perhaps the USD will actually be the last to fall. That is, we could see the USD gain in value compared to other currencies in a crisis (as it did in 2008)
So a US Dollar collapse is not necessarily a given. Or at least not in the way most people might at first glance think. See:
So if the reference point (the USD) tumbles then it will take the rest with it.
This is what we have seen in slow motion over the past 14 years or so. The US dollar has lost value versus gold but so has every other fiat currency on the planet. Just some (like the kiwi dollar) at a slower rate than the US dollar.
But in the final stages of a US dollar collapse we could see a repeat of 2008 where money flooded back to the US causing every other currency (including the NZ dollar) to plunge in value against the US dollar. And so against gold they would likely plunge even more.
Read more on Why would money flood back to the US in a crisis
Also for more on how a Dollar collapse may play out check out: If/When the US Dollar Collapses, What Will Gold be Priced in?