A reader asked me today if I knew anything about a forecast of an imminent US Dollar Apocalypse of September 30, 2016. After digging around, I found this article on Daily Reckoning. It turns out that the Chinese RMB is going to get included in the Special Drawing Rights (SDR) basket of currencies as of 4pm on Friday, September 30, 2016. The weight of CNY is going to be 10.9%, which is higher than the weight of the Japanese Yen at 8.3%.
The story of RMB inclusion in SDR is another nail in the coffin of King Dollar. The article then went on to reiterate the thesis about the destruction of the USD as a store of value.
The obvious solution is, of course, to buy gold. Oh, PUH-LEEZ!
Sorry to disappoint the goldbugs, but some simple calculations show that gold to be an inferior investment to a USD cash position if we factor in T-Bill interest payments.
The investment record
Let’s start with the inflationista’s favorite metal, gold. According to onlygold.com, the price of gold in 1900 was $20.67 and it was $1060.00 in 2015, which amounts to a return of 3.5% per annum. According to this inflation calculator, the inflation rate between 1900 and 2015 was 2.9%, which make gold`s real rate of return 0.6% over that period. Remember, this period included Washington taking the Dollar off the gold standard, two world wars, and Richard Nixon shutting down the gold window.
By contrast, the Credit Suisse Global Investment Handbook reveals that the real rate of return on USD T-Bills was 0.8%.
Despite all the harping about the loss of purchasing power, it turns out that USD invested in T-Bills showed a superior return to holding gold. Incidentally, I have not included the storage fees associated with holding gold in a vault, or as an alternative, the price of the guns, ammunition, freeze-dried food, claymore mines, and other equipment you will need to defend the gold yourself in your Idaho mountain stronghold.
Still not convinced? Isn’t it curious that even the perennially bearish Zero Hedge has not picked up on this end-of-world scenario? Ask yourself this, “How seriously can you believe an Apocalyptic scenario that even Zero Hedge won’t touch?”