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Money is gold?Parker Binion From 2006 until late 2008, gold traded opposite the U.S. dollar: (Click on images to enlarge)
Many Americans naturally assumed that gold's rise or fall in dollar terms was correlated to the purchasing power of the dollar. This fit nicely with the "inflation hedge" theory of gold. Since early January, however, gold has traded with the dollar:
What changed? From a "gold is money" perspective, surprisingly nothing. Closer inspection reveals that from 2006-2008 as the dollar fell, the Euro rose. Gold was quite correlated to the Euro, which was the dominant currency of the period in terms of relative strength:
Since the dollar became the dominant currency, gold is now correlated to the dollar. Perhaps what is really happening is that gold is the dominant currency, and the king-of-the-hill fiat of the moment trades with gold? Feb 17, 2009 Parker Binion is a student of the markets who has successfully managed his own investments for 15 years. He currently runs a public chart blog at Stockcharts.com called the Divergence Report Disclosure: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments gold and silver bullion and gold and silver mining shares. The author's objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, ETF, currency or commodity. Past performance is not necessarily indicative of future results. You may lose money trading and investing. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article. 321gold Ltd |
