Editor’s note
- The Rupiah is weakening; should you choose the dollar or gold?
- Panic puts further pressure on the Rupiah
- The dollar doesn’t always yield big profits
- The Rupiah is weakening; exporters can actually benefit from this
- So, where should you move your money?
- And what about gold?
- Gold may be falling right now, but that doesn’t mean its prospects are over
- Don’t invest out of panic
The Rupiah is weakening; should you choose the dollar or gold?
The weakening of the Rupiah against the US dollar is once again a cause for concern. With the Rupiah remaining under pressure and the dollar appearing to strengthen, the public is asking: is this a good time to buy dollars?
This question isn’t coming only from ordinary people. Many businesspeople, officials, and even high-net-worth individuals are starting to worry and are considering converting part of their assets into US dollars. They view the dollar as a relatively safe investment when the Rupiah weakens.
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However, there is a problem that is often overlooked. If more and more Indonesians buy dollars simultaneously out of panic over the Rupiah’s depreciation, the pressure on the Rupiah could actually increase.
When panic puts further pressure on the Rupiah
Simply put: when the demand for dollars rises while the demand for the Rupiah falls, the dollar strengthens against the rupee. This means that individual actions taken to protect assets against the rupee’s depreciation can collectively increase the pressure on the domestic currency.
This is what complicates the exchange rate situation. When people see the Rupiah weakening, they buy dollars. As dollar purchases increase, pressure on the Rupiah mounts. This weakening, in turn, causes more people to panic and buy dollars. A psychological cycle emerges that can exacerbate the currency’s depreciation.
But is buying dollars really an attractive investment? Not necessarily.
Dollars do not always yield substantial profits.
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Many people buy dollars hoping to profit if the rupiah weakens further. For instance, someone might buy dollars today in the hope that the exchange rate will be significantly higher in a few years.
The problem is that the return on this strategy is not necessarily as high as anticipated.
If the dollar appreciates against the rupiah by an average of only about 3% per year while inflation is higher, the nominal return is not particularly attractive. After adjusting for inflation, the real purchasing power of that profit may be negligible or even negative.
In other words, holding dollars can indeed serve as a hedge against the rupiah’s depreciation, but it is not necessarily the investment vehicle offering the highest returns.
It is therefore important to distinguish between hedging and investing.
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Buying dollars to protect assets against exchange rate risk is one thing; buying dollars with the aim of generating investment returns is something else entirely.
A weakening rupiah can actually benefit exporters.
On the other hand, a weakening rupiah is not always bad news for the Indonesian economy as a whole.
Indonesia is a major exporter of various commodities, such as palm oil (CPO), coal, nickel, and other raw materials. Most export transactions are conducted in US dollars.
When exporters receive revenue in dollars and subsequently convert it into rupiah, the value of the rupiah received can be higher if the currency has weakened.
This is one of the paradoxes of currency depreciation.
For those who import goods or require dollars, a weakening rupiah presents a problem. However, for exporters receiving revenue in dollars, it can be an advantage. Of course, these profits remain dependent on global commodity prices, export volumes, production costs, and global demand. A weakening rupiah does not automatically mean that all exporting companies will achieve significant profits.
So, where should you invest your money?
If you are aiming for long-term capital growth, there are other instruments to consider, including stocks.
Unlike the dollar, which benefits primarily from exchange rate fluctuations, stocks offer the opportunity to benefit from corporate growth.
When a company increases its revenue, boosts its profits, expands its markets, and improves productivity, its value can—theoretically—increase as well.
Investors can even generate two sources of profit simultaneously: capital gains from rising share prices and dividend payouts from companies.
However, stocks carry significantly higher risk than holding dollars. Share prices can fall sharply, and investors need to conduct fundamental analysis, understand valuations, and maintain an appropriate investment horizon.
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This does not mean that all funds should be shifted from dollars into stocks. It is more important to build a diversified portfolio that aligns with your goals and risk tolerance.
And what about gold?
In addition to stocks and the dollar, gold is also frequently used as a tool for long-term wealth preservation.
In the short term, the outlook for gold may come under pressure if the US dollar strengthens and interest rates remain high. When yields on dollar-denominated assets rise, non-interest-bearing gold becomes relatively less attractive to some investors.
It is therefore not unusual for the price of gold to undergo a correction when the dollar strengthens and expectations for interest rate cuts diminish.
However, the short-term outlook does not always align with the long-term view.
In the long term, gold still benefits from several supporting factors, particularly when global monetary policy loosens again. If central banks cut interest rates and implement liquidity-boosting measures, the money supply may increase and real yields on dollar-denominated assets could fall.
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Historically, such a scenario has created a more favorable environment for gold.
Gold may be falling now, but that is not the end of the world.
Investors should therefore distinguish between short-term trends and fundamental long-term factors. If the dollar strengthens and interest rates remain high, gold could still come under pressure in the short term. Gold investors should even prepare for volatility and price corrections.
However, if monetary policy loosens in the coming period, demand for gold as a hedge could rise again.
Assuming these supporting factors actually materialize, it is not impossible for the gold price to continue its long-term upward trend. Some even believe the domestic gold price could eventually reach around 5 million Indonesian rupiah per gram.
This figure is, of course, a projection, not a certainty. The gold price will depend heavily on global gold prices, the rupiah exchange rate, central bank policies, inflation, geopolitical conditions, and demand from investors and central banks.
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Don’t invest in a panic
The most important lesson from the current situation regarding the rupiah is not simply a question of whether to buy dollars, stocks, or gold.
The lesson is that you should not make investment decisions based purely on panic over price movements.
When the rupiah weakens, buying dollars might seem like the safest choice. When gold falls, some might think the outlook for the gold price is over. When stocks drop, investors might feel the market is heading for a crash.
However, every asset has its own cycle.
The dollar can serve as a hedge. Stocks can be a tool for wealth growth. Gold can be used for diversification and as a long-term hedge. No single asset wins in every economic environment. A more rational strategy, therefore, is not to chase after rising assets, but to understand why they are rising, the risks involved, and how they fit into our financial goals.
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Ultimately, the weakening rupiah does warrant caution. However, panic-buying dollars en masse is not the only solution. In such circumstances, investors need to look beyond the immediate: understanding economic fundamentals, comparing the potential returns of various assets, and building a portfolio that does not rely on a single instrument.
Successful investing is not about predicting which assets will rise in value tomorrow. It is about investing in assets that have a fundamental reason for growth and are resilient to fluctuations in the economic cycle. ***tok
