The destruction of the Aussie dollar

The destruction of the Aussie dollar

You’ve seen it, right?

Whoa, what a SPIKE!

It’s here. The rally is on, my friend.

Looks like you may be right. About time.

‘$1,360.

Lol. I just bought silver instead. What a daft…

These are just a sample of the text messages I received yesterday.

Granted, I had to take out the swear words and clean up the spelling a bit.

The messages started flooding in stupidly early yesterday morning. I instantly knew why. Most people know not to bother me before coffee…

When my alarm went off yesterday — before I’d read any messages — I checked the US dollar gold price action overnight.

Gold had traded up 20 bucks an ounce to US$1,360.

As lunchtime rolled around, my phone started dinging again.

A whole bunch of new messages came flooding in, like this one:

I take it back. $1,379.

Wait, what?

I took a look.

The yellow metal was up 1.3% higher to US$1,379.  

Inside six hours…during the Asian trading session…

This was very unusual…

…and very exciting.

Gold in US dollars is having a solid run.

But what’s happening to the Aussie dollar gold price is far more important right now…

The country that won’t collapse

Today’s topic was meant to be about Turkey.

The former Ottoman Empire is in all sorts of financial strife. I first wrote about the country’s money woes back in March last year. Then again in June and November.

It even got a mention as recently as March this year.

But here’s the thing. Nothing really new has happened over there.

The emerging economy is still in a dire spot. The Turkish lira continues to decline. In fact, the lira has lost 63% of its value in the last five years when compared to the US dollar.

Not that that has stopped Turkey borrowing money, of course. And the Turkish economy slipped into a technical recession earlier this year.1

Compounding all of that, inflation is ripping through the country. One Turkish retailer recently complained that rather than increasing prices every couple of months, it’s now every couple of weeks.2

Despite being precariously close to the edge of the financial cliff, Turkey just won’t tipple over.

Which means our analysis of Turkey’s economy woes can probably wait another day.

Although, there is something that Aussies and the Turkish have in common…

(And you’re probably not going to like what it is, either.)

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It turns out our currencies are rapidly turning into worthless pieces of paper we carry around…

It’s not just tin-pot dictators who destroy currencies

In the same timeframe that the Turkish lira has dropped two thirds of its value against the US dollar, the Aussie dollar is down 27%.

Five years ago, you could head over to the US and get 94 US cents for every Aussie dollar.

 As of this morning, you’d get 68.5 US cents for every one Aussie dollar coin you hand over.

Our money hasn’t dropped anywhere near as much as the lira.

But when we compare the two currencies in gold, it seems our monies are both on the same path of destruction.

You see, the Turkish lira hit new highs when compared to gold back in 2018.

At the time, though, it was brushed off as something that happens to emerging market currencies.

Currencies that are controlled by dictators.

The sort of dictators who repeatedly encourage their own central bank to make decisions that would weaken the local currency.

And all of those decisions have meant the lira is worthless.

Inside two years, you now need double the amount of lira to buy one ounce of gold.

And this all happened at a time when the US dollar gold price didn’t do much (unlike the last couple of days).

As the lira weakened, more of them were needed to buy the same amount of gold.

The point is, the lira weakness and the new high in the gold price were dismissed as something that happens when you have tin-pot dictators in charge.

And yet, Aussies aren’t too far away from the same issue as Turkey.

The new highs signal your money is worthless

In the two hours I’ve taken to write to you today, the US dollar gold price rallied US$10 per ounce, pushing through US$1,400 for the first time since July 2013.

Now, don’t get me wrong. This is incredibly exciting for all the gold bulls who have been championing the metal for longer than they can remember.

But if you’re an Aussie investor, you need to pay attention to what gold is telling you, in Aussie dollar terms.

And that is, the worth of our money is falling.

Yesterday, the Aussie dollar gold price cracked $2,000 per ounce for the first time in history.

Then as of this morning, the Aussie dollar gold price moved up $27 per ounce to $2,030 per ounce by lunchtime.

That’s two all-new highs within 24 hours.

In fact, the Aussie dollar gold price has made a new high every day this week.

Again, just like the US dollar gold price rally, the Aussie dollar gold price rally is something us gold bugs will be rooting for.

But you must pay attention to what the Aussie dollar gold price is telling you.

It’s a signal.

It’s sending out a message that the worth of the Aussie dollar is falling. We now need more Aussie dollars to buy the same one ounce of gold.

You aren’t just watching a booming market. You are witnessing the erosion of your purchasing power.

We might not have a tin-pot dictator — but we are watching our money lose its value before our very eyes.

By all means, cheer on the gold price rally. But pay attention to what it’s telling you.

The rising Aussie dollar gold price could be wealth destroying, if you aren’t taking steps to protect what you have.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

1 ‘https://www.investmentweek.co.uk/investment-week/sponsored/3077137/industry-voice-sovereign-interests-esg-matters-in-emerging-market-debt’
2 ‘https://www.france24.com/en/20190618-can-turkey-crawl-back-economic-brink’