Gold News

Dollar Down, Gold Up x 5

Judging the leverage in Gold Prices vs. the Dollar...

EVERYONE KNOWS gold moves inversely to the Dollar, meaning that if the Dollar drops, Gold tends to rise (and vice versa), writes Jeff Clark, editor of Casey's Gold & Resource Report.

This happens with about 80% regularity. But what many gold writers haven't acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world's reserve currency.

The US Dollar index, a six-currency gauge of the greenback's value, has dropped 7.8% so far this year (as of December 3). Meanwhile, gold is up 38.7% year-to-date. In other words, for every 1% drop in the Dollar index, gold has risen 4.9%. If that approximate percentage holds over time, one can begin to estimate what the Gold Price might be if you know what the Dollar might do.

While the Dollar is likely to bounce at some point, making gold correct, the long-term fate of the Dollar has already dried in cement. If the Dollar were simply to return to its March 2008 low of 71.30 next year – a 4.6% drop from current levels – this would imply a rise in gold of 22.5% and a price of about $1,478 an ounce.

The long-term scenario is more dramatic. If you believe the Dollar will lose half its value from current levels, this would imply a Gold Price around $4,164. If you believe it will lose 75% of its value, gold would reach about $5,642 an ounce.

Doug Casey has called for a $5,000 Gold Price; if he's right, guess what that implies for the Dollar?

And think about this: these calculations ignore what else might "show up", such as when price inflation shows up in the economy, the greater public shows up to Buy Gold, or the Chinese don't show up at an auction.

Could $5,000 gold be too low?

Unless you think the Dollar's problems are solved, its eventual demise is gold's eventual glory, I believe. Prepare, and invest, accordingly.

Ready to Buy  Gold...?

JEFF CLARK is editor and lead writer of BIG GOLD, the monthly gold-investment newsletter from Doug Casey's Casey Research. Having worked on his family's gold claims in California and Arizona, and analyzing the big trends in gold's bull market, Jeff and his team aim to highlight safe and profitable ways for the prudent investor to capitalize on today's long-term rise.

See full archive of Jeff Clark.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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