The proponents of the weak U.S. dollar argument point to the fact that just a few short months ago the dollar was valued on the index somewhere slightly above 85 and today has dropped in value to under 76. A fifth grader can tell you that this represents a decline in value of over 10%. If that same fifth grader also examines the price of gold during that period, he or she will point out that the value of an ounce of the precious metal has escalated a bit under that same 10%. Who can argue with those numbers? The bears point out that there has always been an inverse relationship between the respective prices of the U.S. dollar and an ounce of gold and that this relationship is simply showing itself today.

To disagree with this would be idiotic because numbers do not lie. But, in this case do they tell the whole story? I don't think they do.

Historically, international/political turmoil has been an important factor regarding the direction of the price of gold. Depending on your point of view, the relationship here is also an inverse one. When there is little turmoil not much, if any, upward price impact is evident and vice-versa. Today, the world is an interesting and scary place. Consider the following.

An alliance seems to have formed between Russia, China and Iran. The Russians and Chinese have told the U.S. and other countries that they do not support any type of economic sanctions against Iran resulting from its' non-compliance with international nuclear agreements. This statement tells me that they would support Iran should it become involved in any type of conflict.

Israel is feeling, and rightfully so, threatened both by Iran's vocal ill feelings toward it and by the evolution of Iran's nuclear program. We saw what happened in Gaza when the Israelis finally got fed up and, by their actions, made the statement that, when threatened, they would respond with significant force. The destruction of the Palestinians living in Gaza by the Israelis was, as the United Nations said, devastating. Can you imagine what kind of strike against Iran would occur if and when the Israelis feel really threatened by them? The destruction in Gaza will prove to be child's play in comparison. And then, what will Russia and China do?

I believe that Russia, China, the rest of the Middle East and, possibly, North Korea would support them. Then what? Let me tell you, the implications of that situation are terrifying.

Economic turmoil also has an inverse relationship with the direction of gold's price. Let's now consider just our little world, the United States, where economic turmoil is higher than I have ever seen it in my lifetime.

• Unemployment is officially just under 10%. If you believe, John Williams of Shadow Government Statistics, the number is actually about 20%.
• Inflation is officially less than 2%. Again, John Williams disagrees. He says the number is about 6.5%.
• The federal budget deficit is now the highest in history. To make matters worse, the ultimate passage of some variation of the President's medical bill will increase that by $1 trillion, say the opponents of the bill.
• The U.S. dollar is losing its status as the world's reserve currency.
• Consumer confidence is low.

The list of economic turmoil in our country goes on and on. Americans and, for that matter, folks around the world are concerned and their concern is evidenced by their gold purchases.

So there you are. It really doesn't matter who is right - the dollar bears or the gold bulls. For once, they are all going in the same direction.

A.B. Korelin

www.kereport.com

Al Korelin is the host of the internationally syndicated Korelin Economics Report. This program airs on weekends on the Genesis Radio Network. The Korelin Economics Report is also available for listening on the internet by going to www.kereport.com. Unless it is clearly stated, Korelin does not write about or discuss companies on his show in which he has an equity position or which are paying his company consulting fees.