“Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire…” — Warren Buffett, Feb2012

During that same period (1965 – 2012) the price of gold increased from $35.00 per ounce to more than $1800.00 per ounce – a whopping 5000%. Seven years ago this month (August 2011), the price of gold peaked at $1879.00 per ounce, and has since fallen 30% to approximately $1200.00 per ounce currently. That drop in price is the inverse reflection of the U.S dollar’s temporary strength and stability, which is up by 30%. You can see that on the chart GOLD PRICES AND US DOLLAR CORRELATION below…

                          (This interactive chart compares the daily LBMA fix gold price with the daily closing price for the broad trade-weighted U.S. dollar index over the last 10 years.) 

Looking at the most recent activity, the U.S. dollar is currently up 10% from its low point earlier this year in January, whereas the price of gold has declined 14% from its corresponding high point that same month.

Here is another chart US DOLLAR INDEX HISTORICAL CHART…

(This chart of historical data shows the broad price-adjusted U.S. dollar index over the past 43 years as published by the Federal Reserve.) 

When gold peaked in January 1980 at $850.00 per ounce, the U.S. dollar had just begun to move upwards from its decade-long decline, eventually reaching its ultimate high of 128 five years later. A secondary peak at 113 in February 2002 occurred just after the price of gold reached its nadir at $250.00 per ounce. The subsequent decline of 30% in the U.S. dollar resulted in a seven-fold increase in gold’s price.

Again we see the same pattern over and over. And while some may get tired of hearing it, they apparently haven’t gotten the message: “the price of gold is an inverse reflection of the fluctuating value of the U.S. dollar – nothing more, nothing less, nothing else” …Kelsey Williams

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