Forum Archive Index - November 2003

["david.gibson" <david.gibson@k.co.nz>]

The point was made that gold should be considered a currency rather than a
commodity.  Given this perspective - is the rise in price of gold, to the
US$, a reflection of the increasing value of gold or the weakening of the
US$?

In my view - it is clearly the latter.

Federal US spending is out of control.  History teaches us that the US will
abandon its traditional strong US$ stance when the fiscal wolves are at the
door.  (Later part of the Vietnam war early 70's, 80's Reagan era
rearmament, new millenium Bush "adventures").

A strong currency is most desireable when inflation is the greatest worry.
This is not on the top of the Federal Reserve's agenda - the weak, "jobless"
recovery (avoiding Japanese style "Depression") is the main concern.  A low
dollar gets the US domestic resource and export economies firing - this
should get job growth happening.

The recent Bush tax breaks are all about repatriating US investment dollars
when investment logic dictatates that the money should be flowing the other
way!

The Chinese are playing a game of monetary "chicken" with the US.  The fixed
pegging of the Yuan to the Dollar means that there is no monetary brake on
the Chinese/US trade imbalance.  The situation will get intolerable for the
US if their fiscal position deteriorates.

What is the outlook for Gold?  Well, this is the inverse of the question
"What is the outlook for the US economy?".

1)  Continued Federal deficit; and
2)  "Jobless Recovery" or "no Recovery"

all add up to a higher gold price.


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