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« Kinross Gold Corporation: BUY | Main | Fed Reduces Discount Rate to 5.75% »
Friday
Aug172007

Goodbye Dollar, Hello Gold!

If the charts are anything to go by then we can see that the correlation between the US Dollar and Gold remains intact. A broad statement based on what we have witnessed over the last few weeks.

The first chart shows the US Dollar rising from the dreaded ‘80’ level to ‘82’ on the US Dollar Index, making a gain of around 2.5%.

The second chart shows that Gold over the same period dropped around 2.5%.

In simple terms the correlation between the two remains in place as gold moves inversely to the dollar.

Now the predicament that the Fed faced was one of being between the Devil and the deep Blue Sea. Either hold the rates up and save the dollar or reduce the rates and ease the credit crunch giving the markets and homeowners a break. We must also remember that homeowners are also voters and the election is not that far away.

It will be interesting to see if the relationship remains intact following the rate reduction as we would expect the dollar to weaken going forward having an inverse effect on gold.


US Dollar Chart 16 Aug 07


Gold Chart 16 August 07


What price gold next week?

Have a better weekend.

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Reader Comments (5)

Regarding the comment on the Fed's predicament followed by, "We must also remember that homeowners are also voters and the election is not that far away". Is not the Fed not a politically independent organization? Or would you characterize that as "theoretical" independence?

August 18, 2007 | Unregistered CommenterKevin

You're right...there should be a correlation between the dollar and gold. What you get wrong is that the price hasn't risen at ALL compared to the inflation of the dollar. The dollar index is simply an indexed of OTHER fiat currencies ALSO backed by nothing. The only reason gold isn't $3500 or more (actually it would need to be ~$50OOO / oz!! to actually back all the dollars out there with gold. The fact is that the Fed and CBs, thru their bullion bankers, such as Goldman Sucks and JPMoregains4theElites, have suppressed mercilessly the rise in the price of gold that would have shown the worthlessness of the dollar a long time ago. People will say that well, they haven't done a very good job--look at how gold has risen over the past several years. But that rise is a pittance... a spit in the wind...compared to where it should be and WOULD be without the manipulation of the gold (and silver) markets. But...it cannot last forever. Gold and silver cannot be printed...nor created on a computer. jt

August 18, 2007 | Unregistered Commenterjt

...and silver?

April 24, 2009 | Unregistered CommenterDavid

Like this.....keep up the good work!
best regards

April 26, 2009 | Unregistered Commentergideon

The dollar rises because people find value in it. It's not based on actual, physical value and I would agree that it's overbought.

However, you have to consider that many asset are set by perceived value where supply is near infinite and the demand side of the equation drives the value, including the foundation of retirement savings in this country - stocks.

All assets values are supposed to be based on supply, demand and net present value (NPV). But they just aren't because people are (mostly) irrational.

So people around the world are still (begrudgingly) using the dollar and hence, it is still alive and kicking.

February 7, 2010 | Unregistered CommenterShahab

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