The Inverse Relationship Between Dollar and Gold

I think gold will do well long-term. See this and this.

But as I have previously argued, I think gold is surging right now mainly due to weakness in the dollar. See this and this.

Indeed, Nouriel Roubini says that commodity prices have risen largely because of the huge carry trade in dollars, and that – when the carry trade unwinds – there will be a huge crash in virtually all asset crashes. And see Tyler Durden’s thoughts.

Again, I am bullish on gold in the long-term, but I think there might be a large correction in the short run when the dollar rises.

And contrary to what some people think, I agree with Roubini: the dollar will rally sizably at some point in the not-too-distant future (just like it did during the credit crunch last year), before crashing rather definitively.

Update: Gold and the dollar both rose today, but the rise in gold is being attributed to India’s purchase of 200 metric tons of gold.

Note: I am not an investment advisor and this should not be taken as investment advice.

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