Gold News

Does It Really Matter?

Shocked by short-term volatility? Here's the long-term outlook for Gold, oil and the US Dollar...

GOLD AND OIL HAVE BOTH traded lower ahead of the US Federal Reserve's meeting in Washington, D.C., on Wednesday, writes Dan Denning in The Daily Reckoning Australia.

   We'll know soon what, if anything, the Fed plans to do to the cost of borrowing Dollars. But does it really matter?

   Higher US interest rates would justify long-term Dollar strength – and with it, a fall in the long-term Gold Price. But with US house prices falling by an average of 12.7% in the last twelve months (according to the Case-Shiller survey of 20 US cities), and with foreclosures up 112% year-over-year, do you really think the Fed will be raising rates any time soon?

   The Fed is trying to soften the blow of falling asset prices by making it possible for homeowners to refinance into longer-term loans at lower rates, and then ride out the bear market in housing and credit. In other words, the Fed has kicked the Dollar to the curb. It's on its own now.

   That doesn't mean the Dollar won't really from time to time, nor that the Gold Market won't be prone to severe volatility and set backs. As a proxy for economic growth, there will be times in the coming years (let's call them false dawns) where the US Dollar, pointing to the US economy, appears to be emerging from the slump, or is at least doing better than Europe's sluggish growth.

   But the long-term trend for the Dollar index is lower highs and lower lows. For Gold and oil, it's just the opposite, higher highs and higher lows.

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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