What if the purchasing power of the dollar falls dramatically? What if the relationship between gold and the USD re-calibrates to the ratio of 1980? Here is an interesting video that looks at this in detail. It’s actually quite scary but the points are well argued.
This is an interesting video that looks at where we are in the current Gold cycle. It compares the gold price to the amount of dollars in circulation. It raises some valid points.
Gold reached over $1,139 today as the rally continued. Some analysts believe that central banks are causing the current rally. No doubt, they are a contributing factor. However, interest rates have been extremely low for a sustained period of time. As a result, investors are running to gold as a hedge against the inflation that will occur if current interest rates are maintained. We could see a perfect storm for Gold.
As I have mentioned before. If central banks globally raise interest rates the Gold rally may be halted. However, there are broader economic implications to be considered. Right now Gold seems to be a good place to be in order to protect purchasing power.
Gold hit a new record high of $1,111.70 and ounce today. Gold mining stocks also benefited from the current interest in gold. However, it’s worth recognizing that stocks were also up today. This points to the fact that the weak dollar is the main reason for the surge in gold and other asset classes.
There is also a believe in some quarters that China may pass on buying gold from the IMF. This is a significant consideration when looking to future Gold prices. In an interesting article by Peter Koven this is highlighted in greater detail.
All in all, it seems that the two main questions that relate to gold’s current rally are
1) What is the Dollar going to do?
2) What are the central banks of the world going to do?
