What’s Next For Gold Is Always About The US Dollar

A secondary low for the US dollar occurred in 2011. This was closely concurrent with a peak in gold’s price at $1896 oz.

Again, as in the period following gold’s price peak in 1980, the US dollar began a multi-year period of strength and stability. The muted effects of inflation between 2011 and 2016 resulted in a lower gold price.

The price of gold declined from $1896 oz. to $1049 oz. during that period, a loss of forty-five percent.

The price of gold since then has risen to $2060 oz. and subsequently declined back to $1675 oz. Meanwhile, the US dollar has neither gotten much weaker nor strengthened to any measurable degree.

INFLATION-ADJUSTED GOLD PRICES

The chart (source) below illustrates the link between gold’s price and the US dollar. It is similar to the previous chart except that the one below allows for the effects of inflation…

There are five major turning points for gold’s price that are reflected on the chart. All five  turning points (1933, 1971, 1980, 2000, 2011) coincided with changes in the US dollar.

Gold is priced in US dollars and since the US dollar is in a state of perpetual decline, the US dollar price of gold will continue to rise over time, as is shown in the first chart.

There are periodic changes in US dollar valuations and these changes can last for years (1980-2000; 2011-2016). During such periods the price of gold can and does decline considerably.

Gold’s value is not determined by world events, political turmoil, or industrial demand. The only thing that you need to know in order to understand and appreciate gold for what it is, is to know and understand what is happening to the US dollar.

The US dollar is in a constant state of deterioration, punctuated with periods of temporary strength and stability.  The dollar price of gold reflects the deterioration by moving higher over time, usually after the fact.

Gold is not forward-looking. The higher price of gold in dollars is a reflection of the loss in purchasing power that has already occurred.

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and  more

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