David Ranson and Penny Russell are principals of H. C. Wainwright & Co. Economics, an independent investment research boutique based in Hamilton, Mass. Here's an excerpt from an article by them in this past weekend's Barron's (paid sub req'd):
"The market value of the dollar, however, is not what it fetches in terms of other paper currencies such as the euro or the yen. It is the dollar's purchasing power in terms of the most stable benchmarks: "hard" assets such as gold and other commodities. Measured in those terms, the dollar's market value continues to decline. This means that the economy is bound to experience more and more inflationary symptoms -- even if fuel prices continue to retreat.
The graph here shows a close relationship between changes in the rate of CPI inflation and one-year-earlier movements in the gold value of the dollar -- which is the inverse of the dollar price of gold.
Now that gold has passed $500 per ounce, the gold value of the dollar is at a low ebb. We suspect it will fall further as confidence in the dollar continues to slip. And with a lag, we look for inflation to rise further."
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