UK Inflation, Weak US Dollar Good News For Gold Investors

Oh, the wacky world of modern economics…no matter how hard you try, you’ll never know exactly what’s going to happen.

All the experts…analysts…economists, they have their fancy charts and indicator systems, but when you get right down to it: the market has its own agenda.

Take the U.K. for instance. Yesterday, the data that was released showed a significant rise in inflation (at least, significantly more than anticipated), pushed the pound above the psychological $2 level for the first time in 15 years – and caught everyone quite a bit off-guard.

And as the analysts and experts scramble to ‘reforecast’ in the U.K., inflationary fears are spreading across the pond.

Philadelphia Fed President, Charles Plosser is particularly concerned, urging the central bank to “stay vigilant.”

During a speech at the Rutgers University School of Business Quarterly Outlook conference, Plosser eloquently said, “If inflation doesn’t moderate as we expect, the Fed will have to sort of think about what’s the appropriate action.”

Yes…we think the Fed should “sort of” think about it, too. Nothing to strenuous – maybe just chat about how these inflationary fears have pushed the dollar down close to an all-time low against the euro. You know, maybe work it into the conversation over nine holes of golf.

Bloomberg reports: “The dollar fell to $1.36 against the euro for the first time since December 2004 on speculation slower U.S. inflation will spur investors to seek fixed-income assets in nations where interest rates are climbing.”

And where do people turn when the dollar is floundering? Gold. Today, the yellow metal climbed to its highest point since last May.

“Gold may easily climb above $750 an ounce in the 4th quarter,” asserted Michael Widmer, head of metals research at Caloyn in London.

This is good news for long-suffers of the DR – that is, if you’ve taken our advice and held onto some gold to hedge against the falling dollar.

Then again, as we pointed out – you can never know anything for sure. But if history is any indicator, gold has proved to be a better measurement of wealth (and a better way to hold onto that wealth) over paper money time and time again. Bill has called gold “nature’s money” – and for good reason. You can’t turn on a printing press or create it out of thin air; this naturally limits the “money supply,” generally keeping it in line with the economy itself.

Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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