Top Fiat Currencies vs. Gold in 2021: "The Last Shall Be First"

Posted on by Aibek Burabayev

It is time for a traditional yearly post to find out which fiat could beat the conventional store of value this year; all failed last year.

Seven currencies represent the fiat money: U.S. dollar (USD) and six components of the U.S. Dollar Index (DXY) placed by weight: Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK) and the Swiss Franc (CHF).

Let us see below how you predicted the future back at the end of December 2020.

Currency

Most of you picked Bitcoin, aka 'digital gold,' to win the race. You were right again; Bitcoin gained more than 80% against the gold this time. I will build a separate leaderboard for cryptos in coming posts as the main coin has its universe with a pack of newbies trying to claim the throne, so stay tuned.

The regular favorite, the U.S. dollar, was the second choice this year. The third bet was not obvious to me as the Swiss franc usually has been lost in the shadows somewhere between regular champions and exotic bets.

The diagram below shows us this year's result.

Year-to-date dynamics of top fiat currencies versus gold as of the close of December 24, 2021

Currency
Diagram by Aibek Burabayev; source: IDC

Gold has been in a large sideways consolidation this year. It is a natural course of events as we saw two consecutive profitable years for the top metal in 2019-2020. Hence, this year, it was not a one-way street as four out of seven fiat currencies beat gold.

You are the true seers as your main bet on the U.S. dollar has hit the top of the chart, gaining 5% vs. gold. Indeed, the dollar has been a buzz maker lately.

The Canadian dollar has joined its U.S. sibling on the throne as it scored the same 5%. But, again, the strong energy markets underpinned this currency.

It's crazy how the tables turn. In the full ranking below, you can see with the previous year's places in brackets that both dollars were top losers last time. It resembles the so-called "Pendulum effect" when something goes too far on one side; then it hits the other extreme over time. Hence, "The Last Shall Be First."

The British pound was among the top losers as well. Now it enjoys second place with a +4% gain. Recently, the currency found support in the market as "the Bank of England raised its benchmark interest rate to tame accelerating inflation, the first-rate increase by a major central bank since the pandemic began" .

The full ranking for Y2021 (Y2020 results are in the brackets, not including Bitcoin).

    1. US dollar (#6), Canadian dollar (#5) +5%
    2. British pound +4% (#4)
    3. Swiss franc +2% (#2)
    4. Euro -2% (#2)
    5. Swedish krona (#1), Japanese yen (#3) -5%

The Swiss franc ranked exactly as you bet at #3 with a +2% profit. It has lost one position in the leaderboard from last year, as the market did not seek safety this year of "risk-on" mode. The 'Swissy' shows a similar chart structure with gold as both of them are considered safety assets.

The euro is two ranks down to #4 this year. It was not a good year for the single currency as it lost a lot to its main peer, the U.S. dollar. The mild stance of the ECB monetary policy amid E.U. inflation lower than in the U.S. and the 'hawkish' Fed put pressure on the euro. The series of COVID lockdowns in Europe also undermine the outlook. Political uncertainty over the 'post-Angela Merkel period after 16 years of relative stability in Germany, coming French elections, and trade frictions with the U.K. over Brexit make the situation a bit cloudy.

The regular outsider in the past, the Swedish krona is back to its losers pack. It was on the throne last year, and now it closes the chart at #5, losing 5% to gold. It is not too bad as we saw double digits in the red before. In addition, the zero interest rate amid rising inflation, the slowing pace of economic recovery, and the narrowing current account hit the krona hard.

The Japanese yen shares the bottom of the chart, with the Swedish krona losing the same 5% to the top metal. The 'Abenomics' stance to weaken the yen could still be in inertia as nowadays the Japanese economy does not benefit from it as before. The risk appetite in the markets this year and a hawkish outlook of the Fed adds up to the weakness of the Japanese currency. The increasing imports and offshore production favor stronger currency instead. Voices demanding a stronger yen are getting loader, though the situation could change in the coming year to let 'Pendulum' turn the tables again.

Which fiat currency will come out on top in 2022?

View Results

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Please write in the comments below where you are from and what your local fiat currency is. I would love to know about it.

I really appreciate your strong support and all your valuable thoughts shared this year.

Happy New 2022 Year!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

8 thoughts on “Top Fiat Currencies vs. Gold in 2021: "The Last Shall Be First"”

  1. Bob C, USA
    As the chip shortage resolves the Japanese economy will show significant improvement and financial stability.

  2. I am a Canadian and my currency is the Canadian $. For Canada the relative improvement will not be because of wonderful industrial strategies but rather because of a more responsible Central bank that will be more likely to raise interest rates if needed than the US and likely firm oil and commodity prices.

    I want the true dynamics re the relative efficiencies of the US, UK, EU and Canadian economies relative to each other and then against Asian countries led of course by China. I feel that with too little competition through too
    many take overs and other factors the the US and Canada are falling behind. Ports and infrastructure are examples.

    1. Happy New Year Mr.Dillingham!
      It is good to hear from country of champion fiat currency of this year.

      I really appreciate your valuable comment as you might see the situation inside.

      I think we live during so called transition period. It could take more time when we think as to be a new leader challenger countries should seek for mental and cultural support globally otherwise the construction is not solid to last for another century.

  3. [From the US] seeing what's is happening in the gov't and the undermining of the election process that is occurring (ie: We're redistricting in PA; strangely enough all six of the seats lost will be republican seats. My My! what a coincidence....) bottom line is continued pumping of dollars, and we'll soon find out the dollar has been riding a hot air balloon into the sky, especially with the recent STRONG upswing in Covid Omicron cases.

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