To address the gold issue a little better, we have to differentiate Dollar Strength and inflation.
We are seeing historic dollar strength relative to the Euro and the Pound Sterling. The Yen is also very strong compared to other currencies. These two situations should be EXCELLENT of the US, but alas, that is not the case.
When we talk about inflation, we're talking about how much one dollar gets us. For instance, I remember a time when a dollar would get me a Snickers AND a can of Coke. That was a long time ago, and so the lesson here is that a dollar gets you less and less.
Here's where gold comes into the picture. Let's take a very extreme example here:
Russia declares war against the US for meddling in its affairs. They threaten to launch nukes at us, and the threat is very real. We all make a run for it. Some to Canada, myself and others are on our way to Cancun.
If Russia hits the US with everything it has in its arsenal, there's no point in carrying dollars since the country no longer exists. On the other hand, if we're carrying gold bars, it still has value regardless of which country you decide to run to.
Now, if you look at the historic gold charts, you'll see that gold prices spike in times of unrest and uncertainty. Take for instance the 70's. There was an oil embargo, US citizens taken hostage, and a world climate that was beginning to become more and more hostile to the US and the developed world at the time.
Now, you'll see that during the 80's and 90's, gold went back down to the 250-300 level. We still had sizable inflation, but gold came back down to earth. The joke around here is that gold started its upward trend when Bush came into office.
Let's face it, nobody was certain about anything while Bush was in office. We were all wait to see what he would bungle next, and so there was a lot of political uncertainty. The world hated the US, and now, we have a lot to worry about.
Now, I hate for anything like this to happen to anyone, but gold is also used as financial insurance in the case that someone succeeds in taking out our newly elected president. Let's face it, racism isn't dead yet in our country, and the comparisons to Lincoln and Kennedy are a bit eerie if you ask me. On top of that, we are beginning to see that Obama is employing the "Quayle" tactic in picking Biden as VP. The man isn't very smart.
Finally, inflation, economic growth, and price appreciation on assets TEND to all hold hands and move together. The real offset for inflation is asset appreciation. This tends to happen in times of peace and prosperity for everyone. These are the same times that gold trades much lower than it does now. Traders have been using gold as a hedge against losses in their portfolio, lately. The reason you hear so much about gold is it's a legalized version of the "pump and dump." Like I wrote in my last post, once the public starts jumping into the pool, the pros get out and take the water with them.
That sounds like a perfect scam. For all I know, it might even be legal.
