Gold at $2000 - The Trudge Report

Presto!Just days ago (April 26) the Dow closed at 11,205 causing all the marketeers to eye Dow 12,000 as though it was a certainty.Then, in a flash (May 7) it closed at 10,380, but that was an accident.Today, so far, it has traded as low as 10,350.That may change by the time I finish this writing.

With the Dow shedding about 7% of its value, the last few weeks have seen as much volatility as ever in all the indexes and now everyone wants to know, "why?"As one anlayst pointed out this morning, a strong dollar is not a friend to the markets and of late, the dollar is showing Atlas-like strength.This week's Barron's Magazine confirms with its cover headline "Stronger than Ever."So where do the markets go from here?What does all this mean for gold?

With respect to the markets?I think it is quite clear the markets react in sync with the dollar and the dollar has gained significant strength over the last few weeks against major currencies. Hence market weakness.It's that simple. Talk of a collapse in the Euro only serves to heighten fears the dollar will grow even stronger in days or weeks ahead.

It's hard to imagine the dollar is at multi-year highs against other major currencies, considering the trillions of dollars in stimulus pumped into the economy - and trillions more coming.But that's the reality, now what's ahead?

Let's look at the facts.

Fact One
Trillions of dollars were printed and spent on stimulus.

Fact Two
As a result, dollar weakened, market recovered.

Fact Three
Trillions more dollars are scheduled to be printed and spent for years to come

Fact Four
Federal Deficits are already at record levels

Fact Five
National debt is almost equal to GDP

Fact Six
Dollar reverses trend and grows stronger not weaker

Fact Seven
Markets begin to collapse

In my humble opinion this will give license to print as much currency as is needed to keep stimulating the economy.I mean, really, if it doesn't matter to the dollar, how much debt we create, let's create more.Then, the markets can rise again to new highs.Right?WRONG!

This may be the logic employed, but look at the facts.The markets may again rise to current highs or above, but, what's really happened to the markets is extreme volatility.The markets like the stimulus for awhile and then reality hits.Look at the charts.In the beginning, debt crises tumbled the Dow below 7,000.Stimulus boosted it back to 11,205.Other indexes reacted similarly.I'm not saying this is the new trading range for the markets - it's just the facts.With more stimulus coming, so comes the volatility.

Enter Gold!Since April 26, gold, although also reacting to a strong dollar, is hanging on to 3% gains.Any way you look at it, gold is better weathering the threat of a strong dollar than the markets.Don't take my word for it, though, look at the stock charts and compare them to the gold charts and see for yourself.

So what's ahead for gold?Probably more of the same.Over the last decade it has consistently outperformed just about every other investment there is.In comparison to stocks, volatility is minimal and gold demand continues to rise.More and more people are simply adding a gold coin here and there to their retirement accounts.And, regardless of how the markets and gold react to the dollar, inflation keeps creeping into the picture and the relationship between inflation and gold is one that has lasted for thousands of years.

With now a license to print more money, talk of hyperinflation and its effect on gold will once again come to the fore and the trudge toward $2000 gold can continue.