Gold’s Not Rising – Your Dollar is Falling!

Just read an article on Yahoo Finance outlining the rising price of gold (up 0.3%). Interestingly, the article states that the dollar fell 0.7% against a basket of foreign currencies. Oddly, most advisors and media people are still attributing gold’s rise to people being worried about the economy. Here’s a quote from a financial advisor in the article:

“Gold is drifting higher as people’s anxiety continues to rise,” Wayne Atwell of Casimir Capital said. “The U.S. economy seems to be recovering at a weak pace. Every couple of weeks we seem to get news that it’s recovering a little slower than we thought. I happen to think we won’t have a double dip — but it’s certainly looking like we could.”

He’s missing the point – gold is not rising because of recession worries, it’s rising because of money printing worries! As I have mentioned here many times and the numbers above point out – yes overall demand for gold is rising as more central banks choose to purchase it as reserves, as investor demand increases, and as now some momentum/growth traders pile in – the underlying problem is the value of the US dollar. See above – the dollar fell more than gold rose today! It doesn’t happen like that everyday but it helps point out a trend. This same problem happened a bit with oil in 2007 when foolish advisors, politicians, and media put all the blame on “speculators” for the spike in oil prices – that explanation is simplistic and simply stupid. I pointed out in a past article that Uncle Ben began lowering rates right around the time that the oil price started taking off  – read the article here (“Why the Dow Could Hit 20,000 and You’d Still be broke”) – and once it took off, yes, speculators jumped in but the start was growing global demand and then it was exacerbated by the weakening of the US dollar. And it’s happening again.

For a bit of color, look at this old article I wrote commenting on Russia’s finance minister having “confidence” in the US Dollar. This ‘confidence’ is not why Russia is calling for a new global currency folks.