Gold vs. Dollar vs. Euro
It seems World War III has begun.It just has nothing to do with bullets or bombs.It's all about who can make their currency the weakest as a weak currency appears now to be the weapon of choice in the battle to recover from a global debt crisis.And, in case you haven't noticed, fallout from this battle is rising gold prices - silver too.
This raises a myriad of questions as many now speculate on limits to the dollar's decline, believing that is the key to determining the outer limits of gold's potential to rise.
Over the last ten years, the dollar was at its weakest in July 2008 when the Euro reached an all-time high vs. the dollar at $1.59.On the same day gold traded at $976 an ounce.By June 8, 2010, the euro zig zagged its way down to just $1.19.In dollar terms, the dollar rose from just 62 cents per euro to 84 cents for a 35% gain.
To that point in July 2008, increasing dollar weakness seemed to explain gold's rise from just $250 an ounce in 2001 to $976 an ounce.However, that was then, this is now.Something happened to reveal gold's strength is not just a dollar weakness issue.If the theory held, the gold price should have declined significantly off the $976 price as the dollar gained 35% against the Euro by June 2010.Instead gold rose 27% to $1242 an ounce.
Since June, this year, the dollar has again reversed course, growing weaker almost by the day.At the time of this writing, the Euro sits at $1.38 and gold at $1347 an ounce.Once again the experts attribute rising gold to a falling dollar, but, as we now know there is much more to the story.
With all central banks printing more money and battling to make their currency weaker, gold is far from just a weak dollar play.Indeed, if the euro were to rise 15%, to meet its decade high against the dollar, gold could see a similar gain in dollar terms.That could put gold at or above the highly anticipated $1500 an ounce level.
But, again, if the last two years have taught us anything it is that there are many reasons gold could rise to levels well beyond what we can currently anticipate or calculate.
Yes, it's war out there and gold is winning.As banks print more money they buy more gold as a hedge against currency debasement.With central banks now driving gold demand, look for other investors large and small, to begin accumulating gold to hedge against the same currency debasement.
Frankly, they don't have a choice.If I was a bank making loans, and I knew just a few years from now the dollars I will be paid back will be worth a fraction of the value of the dollar I loaned, I would want a hedge against that loss.
I strongly believe that by the time gold has run its course, it will be at levels that far exceed any expectations today's anlaysts and experts can anticipate.
Diversification is still the key.A gold coin here or there, a few American Silver Eagle Coins to mix it up a bit and you're set.And by all means stay informed.Visit LearCapital.com for real time gold and silver prices and breaking gold news.Your savings and retirment accounts may depend on it.