The US Dollar Is Going to 1/10,000 Ounce

The price of gold was up about thirty bucks last week. The price of silver was up almost

seventy cents.

Last week, a reader reminded us that in the long run the dollar is going to zero. He said:

“At some point in time, unknown to me, the futures market for gold/silver will collapse… and the price will undoubtedly be multiples higher…”

Yes, but a lot can happen between now and then. This idea is not tradeable. It was just as true when the price of gold hit $1,920 as it is today at $1,350.

So if this doesn’t work, how do you trade gold? One way is to look at charts of price, or the integral (sorry for the calculus) of price—momentum. While these charts can give you probabilities of the next move, they can’t tell you anything about the fundamentals. And if there’s a truism, it’s that the market may be a voting machine in the short term but in the long term it’s a weighing machine. The fundamentals will matter.

Of course, trading gold is really trading the dollar—but in a mirror that reverses how everything looks. Gold futures traders say gold is going up, but we say it’s the dollar that is going down. Who is right?

It’s entirely uncontroversial that the dollar is not a stable store or measure of value. Heck, its manager the Federal Reserve, has set a policy of 2% annual declines in their paper. Unfortunately (for them), they are not getting the rising trend of consumer prices that they want.

So why would anyone insist on measuring the value of gold—which has been precious for thousands of years—by reference to a dollar that’s designed to go down? Would you measure the height of the lighthouse by reference to deck of your sinking ship?

We think there’s but one answer. Traders want to believe they’re getting richer. It’s rather boring to think that one’s 100oz of gold is still worth … 100oz. Not to mention, it leads to the uncomfortable question of whether one wants to spend one’s gold down.

At any rate, let’s look at the only the only true picture of the supply and demand fundamentals for gold and silver. But first, here’s the graph of the metals’ prices.

http://www.gold-eagle.com/article/us-dollar-going-110000-ounce