Gold today closed at yet another new high against the dollar. The euro has jumped against the dollar of late, so gold is about €30 off its highs against the euro; ditto for the yen. The big story, however remains that all currencies have lost significant ground to gold in recent years. That all currencies have lost so much value against a gold benchmark at the same time overwhelms the movements of one currency vis a vis another.
As this next chart shows, gold is highly correlated with commodity prices (0.86 over this 30-year period), and gold tends to lead commodity prices. I've heard many arguments for why gold is marching to the beat of its own drummer these days (e.g., the Chinese and the Indians are flush with money and can't help but spend it on gold), but I would argue that it is very hard to dismiss gold when you consider how gold and commodities have tracked each other over the decades. Commodity prices have dipped a bit since April, but they are already on the rebound, and this chart suggests they could have substantial upside remaining. This would add significant fuel to the inflationary pressures that are already building (see earlier post).