Gold, apart from other things, is a good indicator of US Dollar weakness and economic trouble and/or inflation hedge. The USD and Gold finally completed a crossover on the 25th June 2007, when a fear that inflation was becoming runaway and the slumping US property market was causing equity markets to decline (which they did).
Today a similar patten is unfolding, in June 2009 the USD is now falling further away from gold, as the USD bull run ended from August 2008 to November 2008 (USD seen as a risk averse currency and bought when the markets collapsed in 2008).
Now with talk of economic recovery, it is clear that the market is dumping the USD (fear of inflation) and buying gold (as a hedge). This mirrors that time when the Federal Reserve Fed fund rate was at 5.25% (June 2007). Where inflation was a problem. Now inflation is creeping back (possibly faster than expected) and the Feds current fund rate is 0%-0.25% and if you look at the below graph, there are wilder USD swings (towards a downside) and sharper sell off the USD. With gold inclining rapidly away from the USD.
From a comparable example of the last price crossover in 2007 (prior to the full market meltdown). It could be argued the market is showing a similarity, but this time with inflation expectations in full force. Will the Federal Reserve lift interest rates? Some commentators think not. The market at this point indicates subtle (or maybe not so subtle) concern (away from stock market euphoria) that something is brewing.
USD Dollar index and Gold Spot price. Note price crossover points on the 25th June 2007 and 1st December 2008. An overall wide patten is forming as the USD and Gold price move rapidly away from each other. In line for another bubble to burst?
Please click on grap for larger image:
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