---
title: What’s behind the new gold rush?
description: Why is the price of gold rising as the dollar falls? Is there a connection between the two? As the US economy takes a battering, uncertainty intensifies.
image: https://blog.ibanfirst.com/hubfs/1.%20COMMON/Image%20library/Blog-RS-42.jpg
---
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# What’s behind the new gold rush?
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Publication date
11 August 2020
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Publication date
11 August 2020
##### **The skyrocketing price of gold and the fall of the dollar have been the subject of a great deal of attention in recent weeks. The two are inextricably linked.**
Gold is an absolute winner in a year in which stock markets are plagued by the coronavirus outbreak and savings interest rates reached zero at a multitude of banks. The price of the precious metal has already risen by at least 30% this year, passing the symbolic threshold of $2,000 this week.
Still, it remains to be seen whether the rally will stop here. Analysts at the Bank of America business bank are already predicting that the price of gold will power on to $3,000 within eighteen months. One cannot ignore that there is a connection between the skyrocketing price of gold and the negative d of the US dollar. Considering that the dollar is falling, the rise in the price of gold seems all the more impressive. Expressed in dollars, the precious metal has increased in worth by 20% within two months. However, less than 10% of this increase remains when converted into euros.
**Mega debt**
Much more than this, the rising price of gold can, in fact, be attributed to the falling dollar. More and more people are concerned about the rising US national debt. In the first three years of the Trump administration, the national debt has risen from less than 20 trillion to more than 23 trillion dollars. As a result of the unprecedented measures to get the economy back on track after the country was hit by Covid-19, this amount is expected to grow to about 27 trillion this year. Net debt will soon be roughly 1.2 times the size of the US economy. By way of comparison, in the Netherlands, this ratio stood at 0.6 at the end of this year, while in Germany the figure was 0.75. From this point of view, it is no wonder that many parties now consider gold to be an even safer haven than the dollar.
**American downgrade**
Credit rating agencies have also expressed their doubts about US financial policy. A few days ago, Fitch adjusted the outlook for the country from neutral to negative. This is a first step towards lowering the very highest AAA rating. In that case, investors will charge a higher interest rate than the 0.5% they currently receive on US 10-year government bonds. This is not something the United States is particularly enthusiastic about. There are several ways to keep the national debt under control, such as increasing taxes and reducing expenditure. However, these are unpopular measures that also nip economic recovery in the bud.
**Inflation expectations**
There is therefore a fear that the Federal Reserve will allow inflation to rise significantly in the coming years. The effect of inflation is that you can buy fewer goods or services for the same amount of money. At an average inflation rate of almost 3%, the purchasing power of your money will have dropped by a quarter in ten years’ time. This is particularly irksome for those who believed themselves to be comfortable, with the prospect of a certain pension income, for example. Conversely, this is a good thing for anyone who has debt. The purchasing power of the amount they have to repay in the future decreases in parallel. As a result, the forex world is keeping a close eye on US inflation expectations. If they continue to rise, the falling dollar and rising gold prices will continue to dominate the financial headlines.
*Joost Derks is a currency specialist at* [iBanFirst](https://ibanfirst.com/)*. He has over twenty years of experience in the forex world. This column reflects his personal opinion and is not intended as professional investment advice.*
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