Hi Richnorth
My beliefs are based on supply and demand, and remarkably they explain everything in the market without giving remarkable powers to gold.
The U.S. dollar is strong, because the currency is in high demand around the world for many reasons. Among the many are:
It is the currency of choice for trading in many commodities.
The hot U.S. stock market has attracted a huge influx of foreign buyers who must sell their currency and buy U.S. dollars to participate.
Huge U.S. companies have huge sales and manufacturing offshore, but repatriate the profits by selling foreign funds and buying U.S. dollars.
Huge foreign companies are investing in U.S. domestic manufacturing and sales networks, again selling foreign currency and buying U.S. dollars to build the plants etc.
U.S. high tech products (software and hardware) are in high demand around the world.
The U.S. dollar has become the currency of choice for trade in many countries around the world, because of it's stability in value relative to other countries' currencies.
All these activities, and more I'm sure, have kept the demand for U.S. dollars up, and the demand for other currencies down. Gold has nothing to do with the above activities, and certainly is not influencing the strong U.S. dollar. The past has nothing to do with the present. What happens in the future is another story.
On the other hand, gold is suffering from oversupply in recent years, despite the crap you hear from Gata and other conspiracy theory folks. Scrap, increased production, and Central Bank selling have deluged the market causing the price to drop. As the price dropped, hoarders unloaded too dropping the price further. Yes, demand for Au has increased, but in reaction to lower prices. Should these prices start climbing, the demand will drop back. 80% of yearly supply is turned into jewelry and other nice looking objects to look at. Such demand is very price sensitive. If the price doubles, the welfare bum down the street probably won't be buying another gold chain with my tax dollars, to hang around his neck. After he buys his beer and drugs, heats his low income housing unit, buys gas for his car and takes a vacation to Disney again this year, he won't have enough left to buy the chain. Probably settle for copper this year (gggggggggggggggggggg).
Will the U.S. dollar remain strong?,...depends on whether the rest of the world wants to use it. It is a currency in use throughout the world. Gold is another world currency,...but currently not in vogue. It has major problems with it's use. It is heavy, in limited supply, and expensive to store. It requires a lot of extra expense to ensure it remains pure.
If the U.S. dollar drops relative to other currencies, gold being one of those currencies would be expected to rise. If gold supply were to drop relative to demand, the POG would be expected to increase as well subject to the basic supply/demand relationships.
What will happen in the future,....who knows? People can't predict what will happen next week, let alone what will happen in a few years. It is my belief that there is still a lot of gold in the ground to be found, and we are getting better and better at finding, mining and processing it. Other metals are competing with it in jewelry.
As long as the U.S. continues to be the economic power house it is now, the U.S. dollar will be strong, and the POG relatively weak, seeing as gold is valued in $U.S. dollars in many countries.
Take a chance, place your bets,...let's chit our pants :-))) |
