Gold Remains Undervalued vs. the Dollar

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"Some analysts claim that the dollar is breaking down due to an increase in risk appetite, which is a dubious assumption."

Gold and silver prices rose last week (gold was up 3.1% and silver rose sharply by 11.6%) as the U.S. dollar fell sharply and broke down technically and U.S. bonds continue to sell off aggressively.

Stock markets remained sanguine as ever and continued on their merry way despite valuations looking very ripe and the recent bear market rally looking long in the tooth.

Some analysts claim that the dollar is breaking down due to an increase in risk appetite, which is a dubious assumption. The largest holders of dollars in the world are the U.S.' creditors, and they are on record as being nervous about their dollar holdings and are diversifying out of the primary reserve currency of today—the dollar. Gold is one of the primary beneficiaries of these concerns regarding the dollar.

This is seen in central banks such as Russia, China and others sharply increasing their gold reserves and in the changed and increasingly favorable view that central bankers internationally have of gold as a monetary asset and asset of last resort.

Real and valid concerns regarding the emergence of competitive currency devaluations and inflation in the coming months will likely see all fiat currencies come under pressure. Gold remains very undervalued versus the dollar as it is still less than half its inflation adjusted high of $2,400/oz in 1980.

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