Monday, November 23, 2009

The dollar and the gold market

I'm a fan of keeping things in perspective. There's been lots of attention recently on the decline in the dollar and the rising price of gold, with the Fed's easy money providing the common denominator. But as this chart shows, the dollar has been flat for the past month, while gold prices have risen 10%. (Gold prices are shown inverted in the chart, so a falling red line means rising gold prices.) If rising gold prices are a good indicator of easy money, then what this tells us is that the inflation threat is spreading globally; it's not just the problem of the U.S. Indeed, if you look at gold prices and currency values over the past year, gold has risen in terms of every single currency in the world. The dollar has been the weakest currency over the past year (and since they are tied to the dollar, so have the Hong Kong dollar and the Chinese yuan), but every currency has been weak when measured by the gold standard.

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