Dollar Tanks, Gold and Oil Up Sharply
May 5th, 2008I see a full court press with all the clowns in the media saying that the bottom is in on the dollar and the euro crash is coming, etc… The dollar will rise on the wings of eagles and harps will play in the background… The sweet perfume of renewal and optimism will pervade America, from sea to shining sea.
Right?
…For now, my assessment of the sentiment above is: Don’t drink the KoolAid.
—Gold: Consider Your Time Horizon
Well, that didn’t take long.
Actually, I’m not celebrating yet because the dollar is still rangebound. USDX needs to crack the support at 71.35 for the next leg down to get underway.
But hats off to gold falling knife catchers.
Via: AP:
Gold for June delivery rose $13.60 to $871.50 an ounce on the Nymex, its highest level in a week. Silver, meanwhile, added 32 cents to $16.785 an ounce.
In energy markets, oil futures surged to a new record over $120 a barrel after supply threats emerged overseas. The weaker dollar also drove up prices.
I had toyed with selling in recent days but held back nonetheless because I remembered I was only holding gold as part of a wider, general hedge as part of a “hold what you have” strategy. I thank Kevin’s comments on spreading risk some months ago for putting me on that path.
So is there any point in reporting gold and oil in US dollars anymore?
I mean the headline says it all; dollar down, oil and gold up – in other words nothing happened.
Or maybe it did. Should we not at least be reporting gold and oil (and anything else) in Euros – or maybe against a basket of currencies. And while we’re on the basket thing, is there some way of using the basket idea to create a hypothetical currency which is a measure of the combined movements of what’s in the basket?
At least then we’d have a solid, realistic indicator of how much hallucianted wealth there is in the world
Well, anyway. I’m no money expert but all this excitement about new records in gold and oil prices when the they’re being measured in a plummeting currency seems a bit misleading to me.
Aaron, the only reason I use dollars is because that’s the currency that most readers of this site use. Personally, most of what I have in in New Zealand dollars, but I don’t use NZ$ on here because that would only be meaningful to you, me and perhaps a few other readers.
Also, the relationships between the dollar and oil or gold aren’t fixed. The dollar can rise and gold can rise with it. The dollar can fall and gold can fall. That’s not the usual state of affairs, but it happens.
What’s misleading is that paper backed by nothing can be used to acquire things like gold and oil in the first place, whether it’s dollars, euros or any of the other fiat currency. So, your basket of paper is just a basket of paper. I don’t see how that’s more solid and realistic.
A more meaningful metric might be: How many coconuts is a barrel of oil worth? The problem is that coconuts aren’t a convenient medium of exchange. Worse, there are only so many coconuts, which would constrain “growth” and “progress.” Gold has the same problems.