Absolutely right. Because dollar strength versus the weakening of other fiat currencies does not mean actual dollar strength.
Whether Dollar Is Weak Or Strong, Gold Will Continue To Rise
by: Dr. Stephen Leeb
September 14, 2011
Lately the dollar has been making strong gains against other currencies, especially the euro.
By many counts that is not such a good thing. Clearly one reason for the gains have been the total disarray within the euro zone. But there are other reasons – ones that transcend the European tendency to not root for a strong dollar.
There are strong reasons to doubt American policymakers when they argue that they support a strong dollar. Our take is that whether the dollar remains strong or weakens – which it will do if the Fed starts the printing presses rolling and Europe gets its act together, both of which are likely on a temporary basis once a Greek default is out of the way – the result will be that gold prices will continue to rise. Yes, we think we are now in a world in which whatever direction the dollar takes, gold prices will continue to rise.
If we had to pick a couple of charts to sum up the economic world since 2008 the two below would be top candidates (click on each to enlarge). One is a chart showing how the S&P 500 has performed relative to the euro; the other illustrates the S&P’s performance against a large basket of currencies, including the euro.
They both tell the same story: when the dollar rises, the S&P falls – and vice versa. At first, that does not make a whole lot of sense. After all, shouldn’t a strong dollar be good for the country, good for stocks, and altogether be an overall sign of economic strength? Indeed, a quick look at post-war history points to the dollar crises of 1978, 1979 and 1987 among others, in which a falling dollar triggered tremendous financial turbulence.
Things have now almost come full circle. In today’s world, a falling dollar is a sign that investors are willing to take risks, with bets on stocks being a symptom of that risk- taking. Commodities and lower-rated bonds also do well when the buck drops. By contrast, when the dollar rises it is a sign of fear and stocks fall and bonds rise. Ironically, even when Standard & Poor’s lowered the sovereign debt rating of America in early August, the dollar rose. Why? Because the ratings agency’s action further increased fears in the market place.
While the dollar’s safe-harbor status in financial storms may be somewhat reassuring to Americans – especially in light of the recent political turmoil – there is a very thin line to cross before you have too much of a good thing. Note first that, while the dollar has become a haven in financial storms, it still serves that role poorly compared to gold. Moreover and more importantly, there are reasons to suggest that even if the dollar does continue to get a bid in times of financial stress, there will come a time in which a rising dollar will itself be viewed as a very risky development. America right now is in desperate need of finding avenues for growth. Stoking consumer spending can only get us so far, especially given high gas prices and the still heavy leverage on consumers’ balance sheets.
Full article: http://seekingalpha.com/article/293478-whether-dollar-is-weak-or-strong-gold-will-continue-to-rise
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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