Friday, January 23, 2009
The relationship between the value of the dollar and gold has apparently changed of late. For most of the past year, dollar weakness went hand in hand with gold strength, and vice versa. In the past week or so, however, gold has risen (note that gold in the chart is inverted) while the dollar has also risen. I'm not sure I have a convincing explanation of why this is happening or what it tells us. On the surface, gold is rising because geopolitical tensions and trade frictions are rising (e.g., Geithner is bashing the bashing the Chinese for "manipulating" their currency, and Congress wants to insert "buy American" wording into the stimulus package). Why the dollar should also be rising, though, I'm not sure. Perhaps it's just that the dollar in the final analysis is still the world's reserve currency, and so it is the currency of choice when things get ugly.
Posted by Scott Grannis at 7:57 AM