Mish defends gold

Dear Nouriel Roubini: The Fundamental Case for Gold Has Not Changed; To Understand, All Roubini Need Do is Look in a Mirror

Mish’s Global Economic Analysis,

14 December, 2011

In response to Dollar Soars vs. All Major Currencies Following FOMC No Hint of QE3; Looking Ahead, What's Next? I received the following email question from a reader.

Still standing by your position? The euro has tanked, US dollar has shot up, and lo-and-behold gold drops $150.

Sigh.

What does it take for people to realize movements in the US dollar have been irrelevant to the price of gold for nearly six years?

Don't believe me? Please consider the following chart.

Gold vs. the US Dollar

Day in and day out someone writes me concerned about strength in the US dollar and what it might mean for gold. Still others email that gold will soar because the US dollar is plunging and will continue to plunge.

However, the US dollar is about where it was at the start of 2005 (a bit higher actually).

The US dollar has seen or crossed this level six times. In effect there has been no net movement in the US dollar for six years. Meanwhile in every instance, with each cross of 80.50 level on the US dollar index, there has been an upward trend in the price of gold.

At the beginning of 2005 gold was at $435. The US dollar index was 80.5.

Now gold is $1640 with the US dollar index a half-point higher at 81.0

Is there any conceivable reason I should change my position on gold (or for that matter the US dollar). 

Hyperinflation Theories Remain Laughable

Hyperinflation theories remain as silly as ever. Try as he might, Bernanke has not been able to stimulate lending or credit growth to any significant degree since 2007.

Consumers are stuck in their houses, unable to move, owing far more on them than they are worth. Students are mired in student loans. Demand for dollars from Europe as well as to pay US debts has soared.

It is preposterous to assume hyperinflation will result from these conditions, especially since Bernanke will not act to destroy banks.

I currently like the US dollar (as I have on and off since 2005). However, that statement in relation to fiat currencies, not vs. gold.

More importantly, I still like gold in spite of the fact I expect the US dollar to strengthen, and in spite of the fact the US has gone into deflation twice (based on credit, not consumer prices) since 2007.

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