Don't Focus on the US Dollar

Source:

Performance of gold is often associated with that of the US dollar. Yes, gold is denominated in the dollar and mostly moves in the opposite direction of the dollar index. But this is only a partial truth and not the essence of the subject matter.

Performance of gold is often associated with that of the US dollar. Yes, gold is denominated in the dollar and mostly moves in the opposite direction of the dollar index. But this is only a partial truth and not the essence of the subject matter.

It is important to remember that the US dollar is not a predictor of gold. The opposite is true: gold typically leads the dollar. The key factor that in turn moves gold is confidence and trust in the world financial system.

Every currency in the Dollar Index and in the world is just as fiat as any other. In other words, the only backing for modern currencies is the trust in the government that prints it. In fact, the US dollar has one advantage over other paper money. It is the world's reserve currency, which increases its demand, at least for the time being. Today about 65% of all countries' foreign exchange reserves are held in the dollar; the euro is a distant second at 25%...

A fall in the dollar by itself does not signal a bull market in gold. A real gold bull market is when the yellow metal value grows in all currencies, not just the dollar.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe