The Strategist

The anti-dollar

In an environment where government debt is likely to grow faster than economic output, asset classes with high value stability are in demand. Gold is therefore moving into focus, as the precious metal cannot be easily manipulated by central banks and governments.

Thomas Wille
Reading time
10 minutes
Gold nuggets
© shutterstock

Ever since the US debt ceiling crisis in the first half of the year and the US government's huge interest payments to service its debt burden of almost 33 trillion US dollars, investors have been wondering what will happen next. Net new debt in the United States is set to exceed 5% annually for the next few years, outstripping economic growth. The US debt-to-GDP ratio will therefore continue to rise. Fitch's downgrade of the US credit rating from AAA to AA+ is not a problem in the short-term. In the medium-term, however, investors may demand higher risk compensation respectively a higher interest rate.

The Strategist Podcast

A G7 phenomenon

Not only in the US is experiencing a rise in government debt relative to GDP, but also almost all other G7 countries. The Pandora's box - huge deficits due to exorbitant fiscal policies - was opened during the corona pandemic and it will not be easy to close it again. The times of austerity we experienced under former German Chancellor Angela Merkel and French President Nicolas Sarkozy are a thing of the past. The Maastricht criteria defined for the euro member states seem to exist only on paper. They were designed to guarantee the stability of the eurozone and require that the debt-to-GDP ratio should not exceed 60% - a target from which the eurozone's two largest economies, Germany and France, are miles away.

Gold as a cornerstone

In an environment where debt will continue to grow faster than GDP, asset classes that have a value stability and cannot be inflated indefinitely are in demand. Gold is at the heart of this, as it cannot be easily manipulated by central banks or governments. It is therefore not possible to create one or two trillion US dollars worth of gold overnight, as is the case in the fiat currency system. The precious metal is the anti-dollar and will benefit from a weaker dollar in the long run. This is also reflected in our strategic asset allocation for a multi-asset portfolio, where we doubled the gold allocation in the spring.

Long-term support

Studies show that the rising ratio of US government debt to GDP provides additional support for the gold price. The rise in US real yields across the entire yield curve is likely to be over, so the headwind will fade in the coming months. The US dollar remains expensive in purchasing power terms and we expect the greenback to weaken in the medium to long term. This will also boost the anti-dollar.

Contact us