Tag Archives: DXY

SEMI-MONTHLY FISCAL/MONETARY UPDATE – GOLD BREAKS OUT OVER $1600/OZ & THE US DOLLAR APPROACHES 6 YR HIGH – SCRATCH ONE MORE MYTH !!

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SEMI-MONTHLY FISCAL/MONETARY UPDATE – GOLD BREAKS OUT OVER $1600/OZ & THE US DOLLAR APPROACHES 6 YR HIGH – SCRATCH ONE MORE MYTH !!

It’s an accepted fact that gold and the US Dollar move in opposite directions. Any number of economists, market strategists, and stock pickers have presented this as gospel. One true giant of the gold mining industry, no less than Pierre Lassonde, has stated that 90% of the price action in gold is dictated by the price performance of the US Dollar.

Not exactly !

If that were true, it would be impossible for gold bullion to be breaking out above $1600/oz., a multi-year high, at the same that DXY, the ETF representing the performance of the US Dollar relative to a basket of other currencies is hitting a multi-year high. WHICH IS WHAT WE HAVE TODAY !

There are a large number of other myths relative to the attractiveness of gold as a store of value and/or a speculative investment. We have dealt with many of the following over the years, will again in the future, and there are other myths as well:

Gold is mostly attractive as a “safe haven”, in times of economic, social, or political chaos.

Gold is useful primarily as an inflation hedge.

Gold can only go up when interest rates, especially adjusted for inflation, are very low.

Gold can’t do well when the stock market is doing well.

Gold is not as liquid as other currencies.

Gold’s absence of dividends is a killer in terms of a store of value.

Gold, going forward, is far less attractive than bitcoin or other crypto-currencies.

I could go on, but for the moment: THE STOCK MARKET AND THE US DOLLAR ARE HITTING NEW MULTI-YEAR HIGHS AND and (somehow) SO IS GOLD !!

Roger Lipton

P.S. But the gold miners are still down 50-70% from their highs & that’s another story for another day !!

SEMI-MONTHLY FISCAL/MONETARY UPDATE – STRONG DOLLAR HURTS GOLD? – NOT REALLY!

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SEMI-MONTHLY FISCAL/MONETARY UPDATE – STRONG DOLLAR HURTS GOLD? – NOT REALLY!

It is an accepted axiom, when viewing the performance and the prospect for the price of gold (in US Dollars) that a strong dollar does not allow gold to appreciate in price. Don’t believe everything you read. The following charts show the performance of gold (GLD) vs. the dollar index (DXY) over various time frames, from the last twelve months to the last ten years. The last twelve months have been particularly dramatic, and unexpected by many, as gold has moved steadily upward in spite of the DXY selling near its high. More importantly, you will see that in every case, over one year, three years, five years and ten years, the price of gold went up in terms of dollars, in spite of strength in the US Dollar vs. a basket of other currencies (DXY). Over the ten-year period, GLD was up about 30% while the DXY was up a little less than that.

ONE YEAR TO SEPT 2019

                                                             THREE YEARS TO SEPT 2019

                                                             FIVE YEARS TO 2019

                                                             10 YEARS TO 2019

In the interest of providing a complete picture: Past performance always depends on which time period you look at and different time periods can tell a different story. The ten-year period prior to the last decade, from 2000 to 2009, is illustrative. The GLD skyrocketed, up over 100% while the DXY was very weak. Gold, to be sure, did a lot better with a weak dollar, as shown below, but was still up consistently with a strong dollar, as shown above.

                                                             10 YEARS, 1999 TO 2009

Our conclusion: All other factors being equal, we would rather see a weak dollar if we are hoping for a higher gold price. However, it should be clear from the charts above that strength in the US Dollar has often been compatible with a rising dollar gold price. It is also worth noting that a relatively strong dollar provides a proportionately higher gold price in in terms of alternate currencies. To varying degrees, depending on timing and relative currency strength, gold has invariably protected purchasing power over the long term.

Roger Lipton