Gold Gains Strength As The Dollar Grows Weak

Elizabeth Kraus While silver continues its meteoric rise, investors often wonder what exactly drives the movement of such an important and financially sensitive commodity, and how bullion trade impacts the mid-term outlook for the U.S. dollar. As gold prices respond to inflation expectations, and central banks being the largest holders of gold, the biggest players in the market impacting gold, a correspondent on Bill Murphy’s LeMetropleCafe site snarled: “The Gold Cartel showed up, and punished both gold and silver in the past four days, and gold was bombed going into an option expiry on Monday … same tricks (tactics) time and time again.” (It is a fact that CME gold-option expiries seem to attract heavy selling pressure.) “Enter the Fed officials today and yesterday. Apparently the strategy was to get several of the FOMC governors to hit the airwaves talking about ending the QE program. … Result? Up goes the dollar and down goes the precious metals market. Coincidence? I hardly think so.” The specter of a determined official-sector effort to cap the gold price is alarming for the gold bulls — especially as a credible rumor of it is likely to attract opportunistic profit-motivated sellers and be self-fulfilling. But this time the fear may be overblown.
For another thing, physical-market premiums as tracked on Le Metropole Café have improved lately. Partly this stems from the U.S. dollar decline, and partly from the recent start of a rally in emerging-market equities. This is firming up such currencies as the Indian rupee, and consequently strengthening their bid to the global gold market. Consequently, the assessment posted Friday on the Jesse’s Café American website deserves attention: “I suspect strongly that when gold breaks out, we will see another fast move higher, because so many in the markets are not positioned for it. After at least one serious ‘gut check’ on the longs, gold will most likely move fairly quickly to $1,590. Depending on what happens, I will not be surprised to see gold hitting $2,000 by year end.”
With dollar decline, add to that, gas prices at two-year highs, and food prices at record levels, the value of a dollar just does not go as far today as it did a decade ago. “Get used to it,” says Peter Schiff, CEO of Euro Pacific Capital. “If people think that gas prices are high now and that food prices are high now, just wait for another couple years,” he tells Henry Blodget. “Prices are going to be up in the stratosphere.” Schiff blames the Federal Reserve’s loose monetary policy for the debasing of the U.S. dollar, rock-bottom interest rates coupled with QE1 and then QE2. If the Fed keeps this up, and continues to print money, he says the U.S. dollar could be worth less than toilet paper…and moving there already.
Last week Federal Reserve Bank President Dennis Lockhart echoed Ben Bernanke’s call to end quantitative easing this summer and said he would “support a change of policy if evidence accumulates that the low and stable inflation objective is at risk.” Schiff is calling both Bernanke’s and Lockhart’s bluff. Without question, the Fed will undergo QE3 and will keep interest rates low for fear of killing the U.S. recovery, he says. If the debt ceiling is hit it could prove disastrous for the U.S. economy. The bottom line, expect the dollar to continue losing value while the price of food, gas and other commodities continue to rise. A longtime dollar bear and gold bull, Schiff foresees gold hitting $5000 per ounce “in the next couple of years.” Schiff’s forecast is based on his view the U.S. dollar is going to collapse under the weight of our massive deficit and reckless policies of the Obama administration, which he compares to the massive spending programs of the 1960s, which paved the way for gold’s ascent in the 1970s. “Obama is making the same mistakes as Bush, but he’s doing them on a grander scale,” says Schiff. In addition to gold, Schiff remains bullish, most notably on China. Regal Assets top analyst says “There is bound to be a QE3 in the near future this tactic has been employed since 2008 and there is no letting up in sight”.
Source: http://goldcoinblogger.com/gold-gains-strength-as-the-dollar-grows-weak/#more-2937