When the dollar falls, gold bullion will take up the slack.
February 28, 2011 – Just how much trouble the dollar is in – and how important gold bullion investments have become – is aptly demonstrated by the upheaval in the middle east and the subsequent surge in oil prices.
It used to be that the dollar soared under risk-off situations, but now the currencies of other nations are gaining against the dollar. And Americans, who once took oil price spikes in stride, now must compensate in order to make ends meet.
The Wall Street Journal says Ken Fisher, chief executive of Fisher Investments, believes that “the U.S. economy has recovered enough that it can handle the impact of higher oil prices,” but clearly he hasn’t climbed down from his ivory tower lately. Every extra penny that the average American puts in the tank these days is a penny taken away from retail purchases. As demand declines manufacturing slows, hiring is reduced, and capital investments are postponed. The recent reversals in the stock market strongly suggest a growing risk-off sentiment.
The Fed can be largely blamed for the dollar’s woes. “With economic indicators like new home sales, jobless claims and durable goods orders, all released today, pointing to a slow, uneven recovery with little job growth,” says blogger Kelley Holland on CNBC.com, the Fed is certain to stick with its ultra-low interest policy, based on inflation figures that dismiss the price of oil.
Central banks in the real world, however, base their figures on headline inflation. They are very likely to adjust rates upward to counter rising oil prices, and that makes their currencies more attractive to investors. And nations such as Canada and Norway have the further advantage of being oil exporters.
The lesson here is not about oil or political unrest, however. It is simply that the dollar can no longer keep pace with the global economy. Fortunately, the value of gold bullion can.
