Dollar Up Equals Gold Slightly Off

The American dollar is up and if you’ve been following along, you know what that means: the long ascending path of gold has stalled for a bit.

For the last several weeks, there has been a media campaign by the new administration of U.S. President Barack Obama to bring hope to American consumers.   He’s done several interviews, had a news conference, and talked about it at every step.  His Treasury Secretary, Timothy Geithner as well as the Chairman of the Federal Reserve, Ben Bernanke, have both been up to Capitol Hill to answer questions, trying to restore faith in the economy.   Consumer confidence is, of course, one of the key factors in any economic recovery.  Others being unemployment, the stock market, and a strong dollar abroad.   And there’s a tough road ahead on the way to recovery.

Unemployment is still soaring.  Government experts have commented that those figures may continue to spike upwards through the rest of this year and into 2010.  But if you talk to the average unemployed person on the street, you can hear varied answers from “oh, it’ll all be fine, once these government programs get underway and they start hiring,” to the sheer panic caused by unemployment that has gone on too long.

But we will recover.  And how do we know this?  Because of consumer confidence, as indicated by personal spending, which rose a modest 0.2% in February, according to the Commerce Department.   This followed a revised 1.0% increase in January, which had to be revised to reflect that growth after earlier estimates went astray.  These tiny little increases were all predicted by government economists.

At the same time, personal income edged downward by o.2%, which is re-couping the same amount that it gained in January.  So the see-saw action continues in American wallets.

Also in gold prices.  The price went soaring upwards in the midweek, but then spiraled downward again on Friday.  And where gold had been selling for $1000 per ounce earlier this year (and well in advance of earlier predictions that it would hit that range around October to November) it is now trending downward around the $940 range.

We’re going to expect this for some months to come.   The government’s top money talkers haven’t said to expect anything other than a difficult year ahead.   President Obama has not suggested that smoothing out the economic numbers will be easy.  Or soon.  But it will get there.

Gold Surpasses $1,000 on Fears of Inflation

Fears fomented by long-term inflationary concerns over President Obama’s huge stimulus package drove investors to gold as a hedge against likely devaluation of the U.S. dollar.

Historically, the price of gold has been intimately wed to the value of the U.S. dollar. This was not difficult to predict. As the dollar loses value, gold gains it. It’s a time-honored maxim, set into motion when about a century ago, on March 14, 1900, the U.S. government passed the Gold Standard Act.

The Gold Standard Act Stated:

“…the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard…”

Back then, the price of gold was set at only $20.67 per ounce (48.38 times less than $1,000)!

This week’s stock market free fall has not helped matters either, with the Dow Jones shedding another $152 of muscle today, bringing the value, as I write this, to $7,313.74.

“There really is no other place to go,” says Leonard Kaplan, president of Prospector Asset Management. “People are scared.”

When falling house prices, stock market crashes, unemployment rates, recession, high deficits, fear of inflation, and the fact that the near future is unknown, tangible assets (not abstract investments) flourish.

Gold should continue to be a safe, hedge investment for the forseeable future. But if the recently passed stimulus package and the upcoming bail out impregnates our economy with Obama’s campaign-trail promise of “new hope”, be prepared to re-evaluate your gold holdings: life and the economy with it, can again experience a vast paradigm shift.