Earlier this week, a U.K. online news service wrote a story (a rumor?) that Gulf Arab states are pushing to dump the U.S. dollar as the primary currency for trading oil (Click to See Full Story: "The demise of the dollar") . Based on that article, the gold traders poured into the market and the price shot up $50 a troy ounce in just 2 days. Yesterday, gold metal hit a new high.
At the same time, the U.S. dollar declined even further with the exchange rate between it and the Euro Dollar at above 1.47 Euros/dollar. To make things worse for the dollar, the United Nations has called for the replacement of the U.S. dollar as the world's reserve currency (Click to See Full Story: "UN calls for new reserve currency"). If this should happen, it could seriously devalue the dollar even further and we could be hit with double digit inflation on everything we import; including oil.
Before the oil/dollar news, gold had simply strengthened in price on the basis that the U.S. economy looks to be faltering once again. Last Friday's unemployment, as an example, came with a higher number of job losses than had been anticipated. In fact, 60% more than was expected.
Gold is a hedge against troubled times. Its used as protection against things like a weakening dollar or the consequential effect of inflation.
Looking at the charts, it appears gold has got its legs again. I wouldn't be surprised if it reaches the $1200/ounce mark or higher by the end of the year. This, again, is further proof that the stimulus spending is not righting our economy. It ain't working, Mr. President!
Please Note: I do not own gold or gold derivatives and, therefore, I have no interest as to whether or not gold goes up or down.