“Gold and USD have a very special relationship, together they share an inverse relationship.”— Paul Ebeling
In other words, the price of gold and USD often head in opposite directions. When the price of USD goes up, gold tends to go down, and when the price of the USD goes down, the price of gold goes up.
Because gold and USD are 2 of the most trusted and widely traded international reserves available to countries all around the world, they are perfect alternatives to each other.
The world has faith in gold’s value because of its position and importance in trade and currency. It is also a precious metal which availability on earth is limited and finite.
And USD became the foreign reserve currency of choice because of the United States’ status as the strongest economy and country in the world.
The Big Q: Why do they share this relationship?
The Big A: Over longer periods of time, there will be a high inverse correlation between the gold price and the US dollar index (.DXY).
But prior to the run-up over 1900 in the current frame, the last time the gold price was trading above 1900 was in September 2011. At the time .DXY was trading in the 70’s.
The investment value of gold: to protect savings from the ravages of catastrophic policies implemented by the Fed and the Government. And both gold and silver are extraordinarily undervalued relative to the quantity of fiat (paper) currency and fiat currency derived debt circulating globally. As such, both gold and silver have extraordinary investment value.
The charts above compare the price path of gold and the USD over the last 12 months.
Without question there is an inverse correlation over an extended frame of time. But from mid-March thru June, gold and the dollar traded almost perfectly in tandem. Since June, gold has risen as much as 400 while the .DXY in the same time is only 300 basis points lower.
Notably, between their respective lows in March and now, gold rose 31.7% while .DXY is flat.
There we see the investment value of gold. Gold and silver functions both as a wealth preservation asset and a wealth enhancement vehicle. Both precious metals are unique in this regard.
The US technically is insolvent.
The Key factor preventing collapse is the willingness of our trade counterparties to continue accepting USD for trade settlement.
With the continued escalation in money printing by the Fed, the global acceptance of USD will diminish more than it has over the last 20 yrs.
At some point .DXY will quickly revisit the 70’s marks it tested in Y 2008. When that happens I expect the gold price to be at least 2X its current price and silver to be pushing 100 with the gold/silver ratio below 40 from its current 80.
Buying physical gold and silver is the 1st priority in seeking shelter from the eventual decline of USD.
Mining stocks offer the potential wealth enhancement too following the Northside prices of gold and silver.
The takeaway: When the price of USDs go down, the price of gold goes up due to the high demand.
Shayne and I cover gold and silver and the miners in depth, and our archive is deep, tune in daily for the up to the minute outlook both technically and fundamentally.
“The above analysis is important because the price of gold per 1 Ounce of 24K Gold just closed at: $1,929.65 USD, which is a potentially in the price break-out area. Further we all know that a new stimulus is in the offing, hopefully before the Presidential elections which is what the general voting public wants. That means a lower value of the USD and a higher value for gold,” says gold investor Bruce WD Barren, a Live Trading News editorial contributor.
Have a healthy holiday weekend, Keep the Faith!