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Decline of the U.S. Dollar
The world price of gold, like the world price
of oil, is expressed in US Dollars. Therefore when the value
of the dollar declines the price of gold (and oil) increases.
The price of gold also generally trends up when buyers and sellers
of gold believe that the value of the dollar is likely to decline
in the future. From the end of 2001 to January 2004 the dollar
fell 30% percent against the euro and 19% against the yen. There
is widespread belief among economists, investors, and others
that over the next several years, with ups and downs, the dollar
will continue its downward trend. (Gold industry executives also
expect the dollar to decline, and some mining companies are therefore
withholding a portion of their production from the market, to
sell at a later time, when they expect the price of gold to be
higher. Within limits, this tends to be a self-fulfilling prophecy;
withholding gold drives the price up.)
The following factors contribute to the belief that the value
of the dollar will continue to decline. Click on a link to read
about each area:
Bottom line: The US national debt and trade deficit are likely
to continue to increase, putting downward pressure on the US
dollar. As the dollar declines, the price of gold rises. A weaker
dollar also drives the price of gold upward by threatening global
stability and the profitability of alternative investments.
Question: Given the decline of the dollar,
rather than invest in gold, should you just buy euros or yen?
- CLICK HERE TO READ OUR ANSWER
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