Obama Effect - Good for Dollar, Bad for Gold

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". . .the greenback rose again from its predicted grave."

A week ago analysts were seemingly almost unanimous in predicting that the U.S. dollar was in serious, if not terminal, decline, while gold was inevitably heading for the $1,000 mark. Well the dollar's decline did not last that long and, as a result, gold has fallen back rapidly as the greenback rose again from its predicted grave.

We have, of course, seen all this before. Prior to the big financial meltdown last year, the dollar was viewed as in terminal decline and gold was looking strong, but as markets collapsed the dollar returned to prominence as a 'safe' haven while gold fell initially. Its safe haven status was then re-recognized, and we did have the unusual situation of gold and the dollar rising in tandem.

More recently, as the dollar started to fall back on the recognition of the huge U.S. deficits and the enormous increase in money supply, gold began its move. As it has before, it got to around $990 and stalled and has since lost more than $30 due to a sense that the worst of the recession is over. And with the latest U.S. jobless figures better than anticipated, the dollar has begun to pick up again. Markets are again rising - but for how long?

Some of this has to be the Obama factor. While economists fear the policies of spending, and printing, more and more dollars will ultimately lead to dollar destruction, Obama has the ability to make Americans believe that things can, and will, get better. If the American people believe things will get better, they will return to spending as only the American consumer can and will help pull the economy through.

Now it's a case of wait and see. If the dollar loses momentum and falls back again then gold could attack the higher levels. Many economists still see dollar collapse as inevitable and if they are right then the sky is the limit for gold, and also for silver hanging on gold's coat tails. The smart wealth preservers will hang on to their gold for the foreseeable future.

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