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Minyan Mailbag

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Aussie rules!

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Laurie,

Please explain your rationale to me. Up to now, gold has been a dollar story. Weak dollar = strong gold. No inflation = no rate hike = lower dollar = higher gold. Higher inflation = possible rate hike = higher dollar = lower gold. I know gold prospers in an inflationary environment, but until gold breaks away from the dollar this hasn't been seen. That is my argument.

Minyan Neal



Hi Neal,

Your argument is perfectly clear and rational and I can't shoot it down, BUT...

Gold appears to be a dollar story, but I don't believe that is 100% correct. Sure it follows it around some, but it can and has moved independently. There is an interesting analysis around that there is a "currency basket" price of gold and it is rising quietly (UNDER MANAGEMENT), as well as all sorts of conspiracy theories... but let's stick with what we know. Gold went ballistic with interest rates under Volcker at way high levels, the dollar was stuffed for sure. That's what I see happening again. The London gold pool 1966-71 is a perfect example and my argument (see Peter Bernstein Power of Gold or a number of other books on same subject).

I actually think gold is a physical/flight to quality story. Every sell off has been stopped by the physical market overpowering the paper market. The dollar strength/weakness is an illusion, it's just a matter of time before it goes the way of every other fiat in history. When? I dunno, but at 50 billion a month requiring funding by us mugs overseas, it can't be far off.

WEAK DOLLAR-HIGH INTEREST RATES-HIGH GOLD that's my take, and always happy to be shown a better mousetrap, especially if mine doesn't work!

Just my opinion as usual....

Laurie

position in gold

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