Let's take a quick look back in time and you will see what I mean. The last time the US dollar index was hovering around 100 where it is now was in 2003 (Feb - April & Sept). You can see that by clicking here to look at this chart of the US dollar index back in 2003. (see it below as well)
So, what was the price of gold back in 2003 when the US dollar index was about 100? The answer may surprise you. Click here to see the average gold price back in 2003. The price of gold averaged around $360 that year (actually a little lower in early 2003).
This is a clear illustration of why you need to follow trends over a long time period. If all you knew about was what has happened in the past year, it might appear as though gold was doing poorly in US dollar terms. But, as you can see, while gold is down some (as it should be), it is nowhere near the much lower price it was the last time the US dollar index as at 100.
What does that mean? It means that overall gold is actually holding up very well in a deflationary environment where the US dollar has made a near parabolic move up. At the same time gold has moved up sharply in other currencies around the world whose value have also been dropping vs. the US dollar (Euro, Yen, Ruble, etc).
So really, gold is doing what it is supposed to do. If anything, gold is showing unusual strength vs. the US dollar rise based on history. If we get further deflation (something the US Fed does not want), gold may drop a little more in US dollar terms.
However, this data also tells us that gold is actually in a position to move higher when the US dollar rally plays out. Only this time, it will start from a much higher base price than it did in 2003. If we eventually get the inflation the US Fed wants, gold should move up quite a bit starting from a much higher base.
Added note: Average price for silver in 2003 was $4.65. So both gold and silver are about 3.3 times higher price than the last time the US dollar index as at 100.
Additional added note: Looks like Marketwatch noticed the same thing we did here.
Update: There are so many news events happening right now that in the morning we will just run a recap of them.
Here's an example of how strange some of them are:
Can the Putin story get any more bizarre? Apparently it can. USA Today runs this story in which a Russian TV station apparently sends Putin "Back to the Future" by doing a "live report" on a meeting which is not scheduled to take place until next Monday. The report talked in the past tense as if the meeting had already happened. That should put all the rumors circulating about Putin to rest :)
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