Commodity Trade Mantra

Gold’s Price Movement is not a Gold Story. It’s a Dollar Story

Gold’s Price Movement is not a Gold Story. It’s a Dollar Story

Gold’s Price Movement is not a Gold Story. It’s a Dollar Story

Many analysts have recently asked: Is gold’s bottom in? Today, I want to question that question a little bit.

When people ask if the bottom’s in, they’re wondering if the dollar price of gold has fallen low enough yet to buy.

The dollar price has come down quite a bit — almost 50% from the all-time high of $1,900 when it got down to about $1,050. It’s up a little bit since then, which has most investors wondering if that was the bottom.

Here’s how I think about it…

I consider gold as money, and I think of the dollar as the volatile asset.

When I see a low dollar price for gold, it just tells me that there’s a very strong dollar.

When I see a high dollar price for gold, it tells me that there’s a very weak dollar.

So if gold went from $1,900 an ounce to $1,100 an ounce, to me, that’s a 50% increase in the value of a dollar.

If gold goes from $1,100 to, let’s say, $1,500, or potentially a lot higher, I would think of that as a devaluation of the dollar.

That’s an important distinction, and not just when looking at gold. Analysts say gold has come down… but really, nearly every commodity in the world has gone down.

Iron ore, copper, oil, sugar, wheat, coffee, etc. When you look at other currencies, too; the Australian dollar, New Zealand dollar, Canadian dollar, and now lately the Chinese yuan, Japanese yen — every one of these currencies and commodities has gone down against the dollar.

What that tells me is that it’s not really about the macroeconomic story. And it’s not really about any one of those commodities or currencies. The story is really about the dollar. What we have is a super-strong dollar. As the dollar strengthens, the dollar price listings of commodities go down.

So what’s happening to gold is not unique to just gold. It’s something that is affecting all of the other commodities and currencies I mentioned too. That’s important to bear in mind. Remember, gold’s price movement is not specifically a gold story. It’s a dollar story.

 

 

Courtesy: Jim Rickards for The Daily Reckoning

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