Gold on a tear as dollar weakens – silver being left behind
Gold on a tear as dollar weakens – silver being left behind by Lawrie Williams – Sharps Pixley
TDC Note – We like Mr. Williams a lot and respect his analysis. We do disagree that silver is being left behind. Silver is moving nicely and that trend will continue throughout 2018.
Since Donald Trump assumed the Presidency of the world’s richest and most powerful nation, the US dollar index (relating the dollar to a basket of other currencies) has fallen by around 11% accounting for much of the increase in the gold price in US dollar terms. By contrast, the gold price in Euros has actually fallen by 1% over the past year, so what may appear to have been an appreciation in the gold price has been more a reflection of the depreciation in the value of the supposedly mighty US dollar. It’s only that most people around the world look primarily at movements in the gold price in the US dollar – as we do in the title of this article- that the gold price is seen as having advanced.
But gold in US dollar terms does provide a useful benchmark as over time the dollar is probably the world’s most stable currency and is, for most nations, their primary reserve currency in their foreign exchange holdings.
This relationship between gold and the US dollar, with the former providing perhaps the most overt indication of how the greenback is doing vis-à-vis other currencies is the reasoning behind what seems to be an ever-increasing view that the power- that-be collude to suppress the gold price to hide what is an overall indicator in the decline of the dollar’s purchasing power.
Some put this decline at upwards of 80% since President Nixon severed the convertibility of the dollar for gold to protect US gold reserves. In some sectors of the economy this decline is readily apparent. Grocery shopping, property prices etc. In others less so, notably transportation and electronics, but in general $100 today would only buy you a fraction of what you could have purchased with $100 in 1971.
But it’s not only the purchasing power of the dollar which has been in decline. The same is true of virtually any nation’s currency. All currencies nowadays are fiat in that they have no backing, which is why some economists call for a return to a gold standard. This is probably impractical without a massive gold price increase and, even then, would probably be overrun very quickly by ever increasing consumer demand for goods and services.