Gold Is Not Lower Because Of A Higher Dollar

Includes: GLD, SLV
by: George Kesarios

A new theory has emerged as an explanation for the big correction in gold and sliver.

The gold and silver crowd want everyone to believe that it's not gold's fault that it is falling, but the dollar's fault because it's rising. According to those who believe the dollar will go to zero, that's not suppose to be happening. I mean, the more the fed prints, the more the dollar is suppose to be debased right? Well that has not been happening.

Putting aside the issue if the dollar is being debased or not, the issue at hand is gold's correction. I have given many reasons in past articles for gold's correction (here, here and here), but the purpose of this article is not to tell you about gold's slide.

The purpose of this article is to prove that the dollar's appreciation -- against most currencies as of late -- has nothing to do with gold's slide.

Please notice the chart below.

(Click to enlarge)

What this chart shows is gold (blue line) vs the U.S. Dollar index (red line).

While indeed gold has corrected lately and the dollar has indeed been climbing, the truth of the matter is that this is coincidental.

If you look closely at the chart, you will find many periods over the 6 years in which gold has gone higher, even as the dollar climbed in value as well.

Yes if someone takes the data apart, they could probably make a statistical case for lower gold and a higher dollar, but also notice something else in this chart.

The U.S. Dollar index has been up and down over the years, while gold has been going straight up. In fact the Dollar Index has been in a trading range between a low of 73 and a high of 81 all theses years, while gold has gone from $600 to $1900.

In other words, the dollar has been up and down all along that trading range, and gold still went up.

Bottom line

Yes one can probably find some statistical correlation between the dollar and gold, but looking at the long term data, gold has almost nothing to do with the dollar, and has been going up all these years on its own merits. And as far as I'm concerned, if gold continues to correct, it will have nothing to do with the dollar, but gold's own merits once more.

Asset classes do go up and down without necessarily having an inter-market statistical relationship.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.