This Week in Summary 10/21/2022

Oct 20, 2022 | Bubble Monitor, No Bull Economics

Bubble Monitor Chart
Bubble Monitor Chart

What’s up with the price of gold? Shouldn’t the value of this precious metal have gone through the roof with inflation largely out of control? Isn’t gold the ultimate inflation hedge? Rather, the price of gold has tanked as measured by the price in US$ over the last 12 months right along with “digital gold” Bitcoin while the greenback has been strengthened by a series of Fed rate hikes which has spiked the Fed Funds Rate from 0.25% in March to 3.25% currently. The high-yielding US dollar certainly seems to be beating up its competition!

Dollar Strength Graph

Conversely, the price of gold has performed strongly over the last year as valued in Yen, British Pound and Euro. Even the central banks have become gold bugs, purchasing net 270 tons of gold during the first half of 2022.  

Gold vs Other Currencies Graph

In conclusion, we can observe that the Fed’s rate hikes have made the US$ the best currency game in town, outperforming gold, Bitcoin, and the currencies of our trading partners. However, this doesn’t necessarily imply that gold is a bad investment, rather it could suggest that the US$ is in bubble territory having become dependent on high-interest rates. But like all those pharma commercials on TV, the Fed’s medicine for the US$ has frightening side effects which include a recession and job losses. Pick your poison…   

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