Gold Rises. Recovery In Sight? Really?

Written by Bruce Wood on October 13th, 2009

Summary:

Have you noticed that gold has been charting new territory, pushing to new heights? This is happening while TV commentators are reporting that the recession is ending, the rain clouds are clearing, and we should be chilling the champagne for a happy days party.

Have you noticed that gold has been charting new territory, pushing to new heights in the past week?

This is happening while TV commentators are reporting that the recession is ending, the rain clouds are clearing, and we should be chilling the champagne for a happy days party. But as (Rich Dad ) Robert Kiyosaki’s Advisor Mike Maloney sees it, (and I agree) we should be out buying rain slickers, because the storm is only beginning to brew.

Unemployment is at its highest in nearly 30 years, and stocks, despite a bear market rally, are still sitting below what they were 10 years ago. Our budget deficits are at unbearable levels, and the government continues to write checks with your dollars.

And speaking of dollars, the dollar is nearing its lowest level ever, and the Federal Reserve Bank is doing its best to make sure that it continues going down.

Consider this: Dollars were once valued by gold. As a matter of fact, almost everything was once valued by gold, and correlations between gold and the value of a dollar still exist. As the value of dollars decline, the value of gold, and every other physical commodity, rises. That includes the value of stocks. If a stock is priced at $1000, and an ounce of Gold is at $1000, then gold increases by 10%, the stock should rise proportionately (assuming that nothing has changed in the underlying company).

So in this scenario, stocks could continue to rise in their dollar value, but in fact be worth exactly the same in terms of gold. Those who point to rising stocks as a sign of recovery may be missing the real reason stocks are going up. That reason is the declining dollar.

This is not a good thing for people who own neither gold nor stocks, and of the two, only gold will remain constant. As the dollar weakens, it will affect the underlying fundamentals of companies and industries. This will be the case as gold rises faster than stocks, or when it rises as stocks retreat.

The Dollar Is Near Historic Lows.

Mike Maloney reports: “With foreign governments clamoring for the end of the dollar as the de-facto world reserve currency, we have a currency crisis in the making. As a monetary historian, none of this surprises me. The US dollar is no different from any other fiat currency in history, and will continue plummeting until it reaches its intrinsic value—zero. And with so many economies attached to the US dollar and the US economy, this will be a global crisis. I have been predicting this since I began studying the markets in 2003, when I fired my family’s financial advisor and invested our net worth in gold and silver.”