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Mines and Money Connect Melbourne: Will US treasuries be the world reserve asset in 10 years’ time?

Mines and Money Connect Melbourne was the centre of all things mining last week in which the movers and shakers of the industry came together for meetings, presentations, and panel discussions.

A wide-ranging interview between Cerutty Macro Fund Portfolio Manager Chris Judd and Lion Selection Group Executive Director Hedley Widdup was one highlight of the event.

The former AFL footballer and Widdup discuss the US dollar and whether US treasuries will be the world reserve asset in 10 years’ time. The conversation also touched on if the US had made a strategic decision to support de-dollarisation, the move to manufacturing offshore, and the emergence of strategic minerals.

 

In terms of de-dollarisation, Hedley says: “I think it’s a difficult one to get to the bottom of. In time, conspiracy theorists would say, ‘Yeah that’s a great idea’. There’s a lot of things that appeal to conspiracy theorists in terms of how that boosts gold. I like gold but there’s a lot of conspiracy theorists circling the bull markets.”

Hedley notes that around the time of World War II the US dollar “came to prominence”. However, some countries are moving away from their dependence on the US dollar as their world reserve currency.

Will US treasuries be the world reserve asset in 10 years’ time? Time will tell, says Hedley

De-dollarisation refers to countries reducing reliance on the US dollar as a reserve currency, medium of exchange, or as a unit of account. After the US emerged as an even stronger superpower during World War II, the Bretton Woods Agreement of 1944 established the post-war international monetary system, in which the US dollar ascended to become the world’s primary reserve currency for international trade, and the only post-war currency linked to gold.

Hedley says that gold tends to perform well in times of global economic turmoil – much like it was during World War II and is now – but he notes the emergence of various countries identifying other minerals as being strategic. He says nowadays, the paradigm has shifted.

“We’re going through a period of time now where many commodities are more strategic than they have ever been. A lot of different governments around the world have a list of commodities deemed to be strategic.

In a lot of cases, that’s either because they don’t produce enough of it themselves, they’re a huge consumer of it themselves, or they are very conscious of the dominance China has in the market.”

Turning to manufacturing, Hedley and Judd discuss whether the US can claim manufacturing capacity back from China. Hedley notes that a strong US dollar would make a lot of sense to maintain if the country had a strong manufacturing industry.

He says: “But a lot of US allied countries have fallen foul of globalisation”, adding that Australia is a great example where much if its manufacturing has gone offshore.

Rounding out the discussion, Judd notes there has only been several times in history in which the Dow to Gold Ratio has been 1:1, asking Hedley his views on whether it was likely to ever happen again.

In response, Hedley says: “I don’t think you could rule that out at all. Never say never.”

The Dow to Gold Ratio measures the relative value of the Dow Jones Industrial Average compared to the precious metal. It indicates the number of ounces of gold it takes to buy the shares in the Dow Jones Industrial Average index.

Essentially, the ratio number tells you how many ounces of gold it would take to buy the Dow in any given month. Previous cycle lows have been 1.94 ounces in February of 1933 and 1.29 ounces in January of 1980.

When the ratio is high, it suggests that stocks are performing well compared to gold, indicating a strong stock market. Conversely, a low ratio indicates that gold is outperforming stocks, which could be a sign of market weakness or economic instability.