Strong Dollar Weighs On Gold

Posted: Apr 17, 2012 12:01 AM

The headline for this article may be a bit misleading as the dollar only looks good in comparison to the euro. 

Gold was down $4.99 to $1,647.85 yesterday morning on the continued rise of the dollar and silver was down $0.08 at $31.35, bringing the silver/gold ratio to 52.5. 

Joining gold and silver on the slide are crude oil, copper and platinum, with palladium being the odd metal up.  Gold and silver prices do really want to go up, but as long as the dollar keeps gaining against the euro prices are going to stay down.  That’s bad news for gold and silver, but it also means the dollar in your pocket goes farther. 

Joe Stiglitz has a long but interesting presentation on how consumer countries like the U.S. have been financing growth in other countries with our trade deficit.  Countries send manufactured goods to the U.S. and we ship Treasury bills back, only t-bills don’t create any jobs they create debt. 

The trade deficit we have with countries like China has been maintained by aggressive trade moves and currency manipulation and unless the Federal Reserve starts fighting back with aggressive currency devaluation of our own we’re going to continue feeding China’s trade surplus with our debt. 

How long Federal Reserve Chairman Bernanke is going to play chicken with the rising dollar is hard to tell.  The longer the dollar strengthens, the less competitive our exports become and that threatens the jobs recovery and feeds our massive trade deficit. 

It’s likely the Fed will be forced to consider additional easing and, when that day finally comes, it will light a fire under gold prices.  Until then we’re stuck in a flat to slightly downward price movement for gold as the dollar continues to flex its muscles against other currencies. 

I still expect gold and silver prices to recover somewhat this week but we won’t see any big moves until clearer guidance emerges on U.S. currency policy or some other news dumps us out of this narrow trading range. 

While it can be frustrating to be stuck in a range, it can also be a good opportunity to add to your collection.  Certainly there’s a downside risk when markets are this twitchy, but just stay focused on the big picture trends and you’ll do fine. 

Chris Poindexter, Senior Writer, National Gold Group, Inc