Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

The Bottom Line on Gold, the U.S. Dollar, and the Euro

Commodities / Gold and Silver 2012 Sep 14, 2012 - 10:45 AM GMT

By: Casey_Research

Commodities

Best Financial Markets Analysis ArticleLouis James, Casey Research : One of the points we've made several times over the last year is that traders stuck in an old paradigm are frequently selling gold for the wrong reasons.

The most egregious (or just plain silly) example is that gold often drops when the euro drops.


This happens, not because there's anything wrong with gold at such times, but because gold is priced in dollars. Instead of being thought of as a store of value in many investors' minds, gold is viewed as a hedge against weakness in the dollar.

But what are dollars priced in?

Nothing, actually. Purchasing power is the underlying reality any "price" for dollars should get at, but that's hard to measure – and the government can't be trusted to report the truth about this.

Unfortunately, in today's world currencies are valued in many people's minds by their "strength" in foreign exchange markets.

Maybe that's in part because nobody believes CPI statistics anymore.

At any rate, the dollar is frequently valued in relation to its main competitor for reserve currency status. In other words, to many players in the market, the dollar is priced in euros.

So when the euro gets slammed, the dollar rises, and this apparent "strength" of the dollar makes gold seem less attractive as a hedge, and gold sells off.

You can see this inverse correlation between gold and the dollar – as well as a very tight correlation between gold and the euro – in this chart of recent price action.

The pattern is very strong. The inverse correlation between the dollar and the euro is extremely high, at -0.92. The inverse correlation between the dollar and gold is not as high, but still very strong: -0.78. And the correlation between gold and the euro is also very high: +0.74.

In our view, this set of relationships clearly shows the error of those caught in this trading paradigm.

The euro is not backed by gold, nor anything at all.

It's a floating abstraction, even more nebulous than the dollar. Gold is a solid commodity, the ultimate safe haven people all around the world turn to when the acceptance of paper currencies and other assets is in doubt.

There's no valid reason for gold to gain and lose value in concert with the euro – it's merely an artifice of both gold and the euro being "not the dollar."

This point is clearly evident in a longer-term chart of the same variables as above.

As you can see, while in the short term gold and the euro seem alike (alternatives to the dollar), over the long term, the euro and the dollar are much more alike, while gold is a beast of an entirely different nature. The euro and the dollar take turns winning and losing against each other, but both are being debased, both are losing ground in the real world, and both have lost a lot of ground against gold.

Now, which of these three would you like to trust your savings to?

And which would you like to speculate on, going forward?

The answers are crystal clear to us here at Casey Research, and they form the basis of our recommendations in our metals newsletters.

Holding precious metals is an excellent way to preserve wealth. Investing in specific mining companies that are poised for growth and/or a takeover by a larger company can be a way to increase your wealth many times over. But not every junior mining company offers such promise... and timing is an essential key to successful investing with this strategy.

Louis James, Casey Research's metals and mining investment strategist, knows the ins and outs of the junior mining sector and has an uncanny ability to sniff out the best prospects. Learn how he does it – and more important, how you can put his expertise to work for you.

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules