For weeks, even months, it appeared the gold price was tied very closely to the dollar. As the dollar fell gold prices rose. However, in the last 2 weeks, gold prices have moved with the dollar index as often as they have moved inversely. Of late there seems to be more to the gold price than just the dollar.
It was just late April when Ben Bernanke held his historical press conference. At that time he addressed inflation - well kind of - by calling rising commodity prices a transitory situation. Not temporary mind you - transitory. Temporary would imply that it will come for awhile and then be gone and I guess transitory means it can come then leave and then come back again.
Whatever it was meant to mean, it was taken as a good sign even though the Fed raised its inflation forecast by 30%. Two days hence, the dollar even showed signs of a rebound as it moved off levels within a point or so of its all-time low. Gold drifted off new highs set over Easter weekend and that's when all the ruckus started about the gold rally being over. As inflation fears were assuaged, the dollar rallied, gold slipped and the markets climbed to multi-year highs. Then everyone went, uh oh, did we hear that right?
No sooner did the Fed make us feel better when jobless claims showed some unexpected increases and the markets got weak. Housing data also showed signs of worsening and just to add a little salt to the wound, real inflation numbers are starting to leak out showing some food inflation as high as 300%.
So, here we sit again with more uncertainty than ever before. Suspicion is growing over any data or analysis that shows an improving economy. Literally, trillions of dollar have been printed and we are no closer to recovery than we were two years ago. More and more it seems we are destined to be an economy dependent on stimulus and bailouts and that's just flat out inflationary. The only other option is default and we've been hearing about that lately, as well.
If you want an idea of where gold prices are really headed, consider that at the time we embarked down this road of stimulus and bailouts, gold was barely $750 an ounce. Now, the gold price sits firmly above $1500 an ounce. We hear all this stimulus was necessary to avoid financial apocalypse. Now, we question whether it can be avoided forever. If anything seems certain it is that gold will continue to react to more printed money as it has over the last 30 months.