I am no Warren Buffet, who can see beyond balance sheets and have an expansive view of a company in one look. I am just a mortal being with a simple economic viewpoint: when you increase the supply of anything beyond the demand for it, its price drops. The dollar supply has increased by trillions as a result of Fed actions to fix the financial crisis of 2008, and its price relative to other commodities must drop. This is my conviction, and I will not be swayed by daily fluctuations of the dollar index.
One way to take advantage of the dollar drop is to buy gold, which is what I have done when the price of gold was about 940. Indeed, there has been a close correlation between the price of gold versus the dollar index: as the dollar index drops, the price of gold increases. September 1st marked the first time that the price of gold did not depend on the dollar, and Yesterday, September 2nd, the price broke out of a 6-7 month triangular pattern, to close at 978 in New York. If I am looking for a signal to indicate the correctness of my conviction, this must be it. The stampede to gold has started, and it feels good to finally see what I have been waiting for, for months.
Why the loss of correlation between the price of gold and that of the dollar index? The dollar index compares the dollar to a basket of six other currencies. Well, those other currencies have also been inflated, in varying degrees. The increase in stock prices worldwide can be attributed to the same debasement of currencies, and now that it is becoming clear that there is no reason for the stock prices to increase by that much, they are starting to come down. This has then become the catalyst for the start of the stampede towards gold: that giant sucking sound you hear starting to deplete the stock market bubble is money now chasing gold.
It’s not too late to buy gold, because the next stop is $1,032 per ounce, and we are far from there. The next stop after that is $1,140, and I don’t think it will end there…