The tremendous U.S. trade deficit ensures that an even larger amount of net foreign investment is needed to keep the dollar stable at current levels, since so many more dollars are leaving the U.S. to pay for imports than are returning to buy U.S. exports. With the recent weakness and unpredictability of the U.S. stock market, it hardly seems likely that net foreign investment will increase; if anything, it is already being reduced. This is especially true since U.S. equities, which outperformed most of the rest of the world on the way up, are likely to decline more sharply in a worldwide bear market.
Average U.S. hourly wages rose by 0.4% in July 2000, on top of a .6% increase the previous month, while there was a net decline of 86,000 jobs, the second largest such drop since April 1991. Thus, there is continued solid evidence that the U.S. economy is noticeably slowing while U.S. inflation is gradually increasing. This combination is ideal for gold and its shares, and used to be called "stagflation" when it ran rampant in the 1970s.
Gold's value depends primarily upon its role as a safe haven in a slowing world economy. When there is a strong economic expansion, investors have little need for a safe haven. When the world is entering recession, especially if the U.S. dollar is falling, gold is more eagerly desired, and being one of the few investments which is usually rising entering a recession.
To be sure, the POG is down slightly thus far this year. But the gold stocks are up sharply this year and that is quite bullish moving forward.
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