Monday, March 16, 2009

Gold and Dollar Are Friends

Interesting article in the WSJ yesterday entitled Dollar, Gold Are Suddenly Inseparable. The article ponders the recent correlation of gold and the dollar since historically they have been uncorrelated. I have been talking about the liklihood of this as gold moves back into a currency role. I think it also shows their may be statistical deflation but actual currency inflation. It is the stealth inflation that you can't see because prices are actually moving down but how much more would prices move down if money supply wouldn't be increasing? One possible measure is to see how gold is moving up in relation to the dollar even as the dollar is also strengthening. Anyway, interesting read though the article just dances around possible causes.

For the better part of this decade, the price of gold and the value of the U.S. dollar tended to move reliably in opposite directions -- when gold went up, the dollar went down, and vice-versa. The reasoning is that a weaker dollar can feed into worries about inflation. That in turn prompts investors to turn to gold, a hard asset in limited supply whose value typically rises in inflationary times.

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