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Old 10-16-2010, 15:24   #78
VBG23
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Join Date: Mar 2006
Posts: 741
Quote:
Originally Posted by Big Bird View Post
The price of Gold has had almost no correlation with inflation for the last 32 years according to a study by Ibbotson. Take Gold's high point in 1985 at $850 an ounce and today it would have to be worth over $2,200 an ounce to just keep up with inflation. Forget the high point--take the average price of the 80's and the metal still hasn't kept pace with inflation Over the last three years the price of Gold has gone up dramatically. Yet inflation has been below 2% for most of that time.
The price of Gold is reasonably correlated with the value of the dollar on the world's currency markets.
How exactly do you reconcile those two statements? There is no correlation between inflation and gold, but gold is a good hedge against decline in the value of the dollar?

in·fla·tion
NOUN:

-The act of inflating or the state of being inflated.
-A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

Quote:
Originally Posted by Big Bird View Post
Since it seems clear that the current administration is going to pursue a weak dollar strategy to help prop up manufacturing its not unreasonable to use Gold as a hedge.
I actually agre 100% with you, but this statement seems contrary to your other arguments so I am a bit confused. A decline in the value of the dollar is a major cause of inflation. So either gold is a good hedge against inflation or it is not.
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