Gold continues to create new records

Today’s chart of the day perhaps presents the greatest paradox of our times. What do you think is a good gauge of a country’s economic strength? Its currency or its stock markets? If you answered both then perhaps the chart laid out below will leave you scratching your head. Since the lows of March 2009, while the US stock market benchmark, the Dow Jones, has risen by a significant 56%, the purchasing power of the US dollar vis-à-vis gold has come down by 15%. What more, it has also moved down by a similar margin against a basket of currencies. Thus, either the stock market rally is false or the dollar’s decline. Fortunately, we do have some objective criterions viz. the earnings trend of US companies and the US balance sheet to make some reliable assessment. And the criterions do point towards the fact that the US dollar is indeed under pressure. Thus, a conclusion that directly follows from this one is that the US stock market rally of the past six months may not be true after all. Hope the US stock market investors are listening.