The Peculiar Case of the Dollar and Gold

January 26, 2009

Gold's moving to the upside now, more at the expense of the euro than the Yankee greenback.

In London, bullion was fixed at $906.50, a price level not seen since August. Against the euro and pound sterling, however, this morning's gold fix was a record high.

The takeaway from all this is that the eurozone and the British Isles are coming to a full realization of the intractable nature of the current economic crisis. The quick fixes tried to date aren't working. Investors' fretting, in fact, reversed the course of gold's price trend, which had been weakening since New Year's Day.

Today's record is actually carryover activity from last week when gold appreciated a whopping 10.9% against the British currency and 6.5% versus the euro.

Gold's YTD Performance In World Currencies

Only two reserve currencies, the yen and dollar, are still priced – goldwise – below their year-starting levels. That's another way of saying the disinflation in the Japanese and American economies is stronger.

Given the late start the European Central Bank and the Bank of England got off to in the great liquidity race, that shouldn't be surprising. But everyone's been waiting for the reflation shoe to drop.

Commodities are likely winners in a reflation scenario.

If the shoe hasn't dropped yet, it seems to be teetering on the shelf's edge, judging from the step-up in commodity ETF share creations. Shares outstanding of the PowerShares DB Commodity Index Tracking Fund (NYSE Arca: DBC), for example, are now at a six-month high.

Keep count of your Florsheims.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold to find out more. You may Sell Gold to us too.

[ Back To Home ]