January 2025 - Week 5 Edition

Will the Dollar Fall 10% to 20% in 2025? Will Gold Hit $3,000? How Soon?

The main component supporting the U.S. dollar is its relatively high interest rate among developed economies, with the 10-year treasury bond offering between 4.5% and 4.8% lately. This is based on the fact that bond traders are taking Federal Reserve chairman Jerome Powell at his word that he might only cut short-term rates two times this year, to match the current long-term rates. However, what if Powell cuts rates more often to match the lower interest rates offered in Europe, Japan and other developed nations? Could the dollar start to fall?

Other than high interest rates, the dollar has little fundamental support. The M2 money supply, which is the Federal Reserve’s estimate of how much money supply that people have on-hand including cash, checking and savings accounts and CDs, has grown by 40% in the past five years, mostly in support of COVID relief and stimulus programs. The money supply is up 4% in the last 12 months, when it shouldn’t be rising that fast. Also, the Joe Biden budget deficits in the last quarter are soaring, at a $2.7 trillion annual rate, pushing the long-term federal deficit well above $36 trillion and weakening the dollar further.

So far, the dollar has declined in January. During the first week of the Trump era, gold gained 1.75% as the U.S. Dollar Index (DXY) fell 1.75%. The continuing high deficits in the U.S. budget, along with the printing of more “fiat’ money, will eventually weaken the dollar. Bank of America has estimated the dollar is more than 20% overvalued. If the dollar sinks by even 10% in 2025, gold could easily score another 14% gain to $3,000, even if it gains only a small amount (4%) in terms of the average currency basket in other global economies.

We are not alone in saying this. Four of the biggest Wall Street investment banks have all predicted $3,000 gold or higher for the year ahead: Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase – the biggest of the big – all see $3,000 gold, partly based on a decline in the dollar but also due to a resumption of inflation and a continuation of global crises in 2025.

An increase in gold and silver prices often results in more people being attracted to gold and silver rare coins and including them in their portfolios. Contact one of our professional account representatives today to find out all the ways you can benefit from investing in precious metals.

On Thursday, January 23, as President Trump was addressing the World Economic Forum in Davos, Switzerland, the S&P 500 reached a new high and then gold also hit a new high the next day. It reached $2,777 on the spot market and $2,792 (intra-day) on the futures market, topping the previous records set on October 31, 2024.  There is no clear trend in the U.S. Dollar Index (DXY) in the new year but the DXY declined 1.75% in the first week of Trump 2.0, January 20-24, with gold rising about the same percent.

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