How The Gold Price Will Defy Skeptics And Stage A Huge Comeback

The dollar has staged such a stellar performance since the start of the year there is now an almost universal acclamation of its strength and a consensus that parity with the euro is very close.

A strong dollar means a low gold price, or does it? Gold is actually one of the world’s best performing currencies this year, off just a couple of per cent compared with double-digits for the euro.

Dollar crash coming?

That said if the dollar crashed then gold prices would undoubtedly surge as the only credible rival safe haven currency, except perhaps the Swiss franc. Where the gold skeptics have the argument wrong is their belief in the almighty dollar.

As former Federal Reserve chairman Alan Greenspan said recently the US economy is ‘extraordinarily weak’ (click here). How then can it continue to support an extraordinarily strong currency? Is it not living a lie?

It is more fair to say that the US economy looks stronger than its competitors. But it is weak enough all the same: labour participation is the lowest in modern history, housing is flat on its back, consumer spending is down despite the huge falls in gas prices and now the exchange rate is massively overvalued making exports uncompetitive.

Could the next few months not bring a realization that the US economy is not such a paragon of virtue? Indeed things are looking so weak in the first quarter it could be heading for a recession.

That would mean the Federal Reserve rethinking its current position and kicking the prospect of an interest rate rise out into the long grass. In fact if the economy slows enough it still has room to cut rates.

What would this mean for the dollar and the gold price? Why the dollar would instantly lose its appeal and fall from the very lofty place it now occupies in currency markets. Is the recent spike in its chart not an obvious sign of an unsustainable rise? These exponential spikes crash and burn.

Go for gold

The smart money is quietly shifting to gold now. For gold would be the major beneficiary of dollar weakness as the only currency in the world without a central bank printing like crazy behind it.

Given the relatively tight precious metals market gold and silver prices would soar into the stratosphere, especially if monetary instability pricked the bubble in global bonds and brought down equities too.

We’ve seen a strong dollar before major financial crises many times before and this time may be no different. When that crisis happens it will be time to ditch the greenback for the one currency you can trust!

http://www.arabianmoney.net/