There’s been a lot of media/Wall St/blog noise about the relative strength or weakness with the U.S. dollar. With respect to gold, the daily vicissitudes of the gold price are associated with the daily price variations of the dollar index. This is incorrect analysis.
To be sure, over longer periods of time, there will be a high inverse correlation between the gold price and the dollar index. But prior to the run-up over $1900 in the current period, the last time the gold price was trading above $1900 was in September 2011. At the time the dollar index was trading in the 70’s.
The investment value of gold – My thesis for devoting the last 20 years to researching, analyzing, trading and investing in gold has been twofold. First and foremost to protect my savings from the ravages of eventual catastrophic policies implemented by the Federal Reserve and the Government. But secondarily, both gold and silver are extraordinarily undervalued relative to the quantity of fiat currency AND fiat currency derived debt circulating globally. As such, both gold and silver have extraordinary investment value.
The graphic above compares the price path of gold and the USDX over the last 12 months. Without question there’s an inverse correlation – over an extended period 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 dollar index in the same time is only 300 basis points lower.
In fact, between their respective lows in March and now, gold has soared 31.7% while the dollar index is largely flat.
This latter occurrence is what I call “the investment value of gold.” Gold (and silver) functions both as a wealth preservation asset and a wealth enhancement vehicle. Both metals are singularly unique with these attributes.
Let’s face it. The U.S. technically is insolvent. The only factor preventing collapse, for now, is the willingness of our trade counterparties to continue accepting the dollar for trade settlement. With the continued deterioration in the economic, financial and fiscal condition of the United States and the accompanying escalation in money printing by the Fed, the global acceptance of the dollar will diminish more than it already has over the last 20 years.
At some point the dollar index will quickly revisit the 70 level it tested in 2008. When that event occurs I expect the gold price to be at least double its current level and silver to be pushing $100 (gold/silver ratio below 40 from its current 80).
Buying physical gold and silver – not GLD or SLV – should be your first priority in seeking shelter from the eventual fate of the dollar. But mining stocks offer the potential wealth enhancement as well “optionality” upside to the prices of gold and silver. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.
IMO the fallacy in this approach is to assume that the other worthless fiat currencies in the DXY or similar index have any more value than the USD.
GBP? lol. JPY or EUR? also lol.
I have 2 remarks regarding this :
> But secondarily, both gold and silver are extraordinarily undervalued relative to the quantity of fiat currency AND fiat currency derived debt circulating globally. As such, both gold and silver have extraordinary investment value.
I got to the same conclusions several years ago and bought precious metals.
Of course, they have increased in value ( or rather : the value of the US dollar has fallen) but not that much.
I have come to the conclusion that the powers that be can control the USD side of the XAU/USD, and as long as they control it (as long as the Comex and all equivalent schemes will be operating), they can slow down considerably the increase of price of precious metals.
We may be screwed for much longer than we think.
> Let’s face it. The U.S. technically is insolvent.
I beg to disagree. The world technically is insolvent.
I live in France and to me, the US Dollar is a safe haven compared to the Euro.
The fact that all fiat money are rotten will probably considerably slow down the decay process.
So my question is this; I am presently 100% invested in precious metals, do I convert a portion to mining stock investment and/or shorting select equities based on Dave’s excellent short seller report? I like the idea of physically holding my assets and distrust the equities markets and their machinations. Is it now wise to “diversify” as described above.
A related question is that considering the present arc of violence, I am considering purchasing a single family home in an affluent neighborhood in lieu of living in an apartment as I do now, albeit the apartment is also in an affluent southern local not infected overtly with a liberal demographic? This house will be the one I die in (am presently 58 yo). Would it be wise to trade a portion of my precious metals towards a down payment in sufficient amount to eliminate PMI? The monthly payment will be a wash. This would equate to an overall reduction in my physical assets by approximately 15%. I plan to wait until fall of 2021 to purchase the home as the data implies a housing price correction in that timeframe.