Gold futures continue to surge in the market, with the most active February 2024 futures contract currently up by $9.80, fixing at $2089. This price is just a few dollars below one of the highest closing prices recorded recently, reaching $2091 on Friday, December 1. Over the last four trading days, gold has experienced a significant upward trend, gaining well over $40 since Thursday, December 21 when it opened at approximately $2045.
The continuous gains in gold are a result of severe dollar weakness in the market. The US dollar index, a measure of the dollar’s value against a basket of major currencies, declined below 101 in today’s trading session, hitting a low of 100.952. This is the lowest value the dollar index has seen since the end of July. The decline was largely triggered by geopolitical unrest in Ukraine and the Middle East, as well as a recent announcement made by Russia and Iran.
Russia and Iran have recently finalized an agreement that will greatly impact the value of the US dollar. The two countries have decided to trade between themselves using their local currencies, rather than using the US dollar. This move is in line with a global trend of de-dollarization, with several countries including Brazil, Malaysia, China, and India working towards reducing the significance of the US dollar in international trade.
The de-dollarization movement aims to establish alternative trade channels that do not rely on the US dollar, which has been the dominant reserve currency since World War II. By bypassing the use of the US dollar, countries like Russia and Iran are challenging the stability and global dominance of the dollar. This shift in financial practices could potentially lead to a decline in the dollar’s value and have a bullish effect on the price of gold.
The strength of the US dollar as the international reserve currency has been largely maintained by the so-called “petrodollar” system. For years, the majority of oil transactions worldwide have been settled using the US dollar. Billions of dollars are exchanged daily in these transactions, further solidifying the dominance of the dollar. However, the recent decision by Russia and Iran to trade in their local currencies undermines the petrodollar system, potentially destabilizing the dollar and further boosting gold prices.
The current momentum of gold, coupled with the weakening US dollar, suggests a positive outlook for gold prices in the future. As more countries join the de-dollarization movement and reduce their reliance on the US dollar, the demand for alternative assets like gold is expected to increase. Investors should closely monitor these developments and consider adding gold to their investment portfolios.
Gold continues to gain momentum in the market, driven by a weak US dollar and a growing de-dollarization movement. With Russia and Iran’s decision to trade in their local currencies, the global dominance of the US dollar is being challenged. This shift in financial practices could potentially lead to a decline in the value of the dollar and a bullish effect on the price of gold. Investors should stay updated on these developments and consider gold as a potential investment option in the current market climate.
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