November 02, 2010 – Every election tends to raise concerns about the future of gold bullion prices and this one is no exception. If anything, they are stronger this year because the Fed’s announcement of the next round of stimulus and the nonfarm-payrolls report follow on its heels. Only the last two, however, are of any real significance.
The economic machine is a behemoth with enormous momentum against which shifts in political power have very little effect. The payroll report is unlikely to improve the overall economic outlook in any meaningful way and the expected quantitative easement policy of the Fed promises only to sustain the dollar’s decline and elevate prospects for inflation.
None-the-less, the dollar and stock values will likely continue to the odd dance begun last summer, one rising as the other falls. That correlation, which might reasonably be considered natural, is in fact very rare and last occurred four decades ago when we moved off the gold standard. Quite possibly it is just an indication of uncertainty among investors who find themselves in a new game with unfamiliar rules.
Markets seek a solid basis for comparative evaluation of investments. When the dollar transitioned to fiat money, it was not surprising to see stocks temporarily link up with the currency. It is no more surprising that they should fall back on that as the transition to global economics obsoletes familiar models.
Least surprising of all is that gold bullion prices experienced astronomical growth during both transitions. Throughout history gold has tempered erratic movement in artificial standards and maintained its value as currencies rose and fell. Now, as big investors join the legions of individuals who have protected their wealth with gold, demand can be expected to escalate exponentially. One would be hard pressed to imagine a better time to buy gold bullion.
