YEREVAN (CoinChapter.com) – Economist and Gold bug Peter Schiff predicted a US dollar crash looming, as the Federal Reserve could fail to stick the soft landing it claims to have achieved.
The US dollar is on the verge of a historic crash. This will be a game changer for the Fed and the economy, as it will send inflation, interest rates, and unemployment soaring. Forget about a soft landing. It’s crash & burn.
tweeted Schiff
Treasury Yields Dipped, But It’s Too Soon to Celebrate
In detail, the US economy has been on the verge of recession since the Federal Reserve boosted interest rates by more than 500 basis points over the past six quarters to tame inflation. Government bond yields, against which policymakers benchmark corporate debt rates, surged in line with the Fed’s hawkish policies.
However, the treasury yields dipped in the previous month, raising hopes for a soft landing after all, despite Schiff’s warnings.
Reuters attributed this change to the latest economic growth reading, which did not significantly alter market expectations that a Federal Reserve rate cut could be on the horizon. As of Nov. 30, the benchmark 10-year notes were down 7.3 basis points at 4.26%, the 30-year bond yield was at 4.44%, and the 2-year note yield was at 4.63%.
Meanwhile, dropping yields does NOT mean a dollar crash, but there are other factors to consider.
High Spending Boosted the GDP, Not Economic Growth
At the same time, the US Treasury yield curve has been inverted since 2022, ringing recession bells. An inverted yield curve has successfully predicted every recession since 1955, with only one false signal.
Bank of America experts predict that the curve comparing two- and ten-year Treasury yields will turn positive and end the year at +25 basis points. However, there are concerns about the supply-demand backdrop, particularly regarding long-dated securities as the Treasury is expected to increase debt issuance.
Schiff also noted the debt issuance. He asserted that the increase in gross domestic product (GDP) in Q3 is due to high spending rather than economic growth.
The US economy is already in recession. Though Q3 GDP grew by 5.2%, government spending contributed 5.5%. So without that spending, GDP would’ve contracted by 0.3%. Government spending borrowed money doesn’t reflect real economic growth. It will only lead to higher inflation.
said Schiff
Gold Price Surges Past $2K
In times of economic uncertainty or market volatility, investors often flock to safer assets like US Treasuries and gold. If Treasury yields are low, indicating a risk-off sentiment, gold may become more attractive as a safe-haven asset, and its price may rise.
As of Nov. 30, the gold price reached over $2,040 an ounce, surging 6% in the previous three weeks.
Unsurprisingly, Shiff also added that investors will eventually turn to gold to offset their dollar crash losses.
The U.S. dollar is toast. As inflation heats up, to avoid getting burned the world will turn to gold as the most viable alternative.
he added.
Central Banks Raised Gold Price
Central banks worldwide agreed, cranking their purchasing. The World Gold Council has reported that global central banks have been purchasing gold at a record pace in the first three quarters of 2023, reaching a total of 800 tons. China, Poland, and Singapore were among the primary buyers of gold during this period.
Additionally, the Central Bank of Türkiye notably continued its gold buying spree in November, adding an additional 19 tons to its reserves. This brought its year-to-date net purchases of gold to 123 tons, the largest reported by any country, and increased its official gold reserves to 517 tons, which constitutes 27% of its total reserves.
Is the dollar crash imminent? It is not clear if Schiff’s predictions have merit to that extent. However, several macroeconomic factors point out that it is too early to celebrate the growth in the US economy.