Gold's bull market ebbs as the dollar tries a comeback

Rising inflation pressures are a serious threat, as Fed chief Bernanke has been telling us over and over again lately.

Yet the premier inflation hedge -- gold -- has been struggling since crossing the $1,000-an-ounce mark for the first time in mid-March.

And today, after Bernanke repeated in a speech late Monday that the Fed wouldn’t allow inflation to take off like some helium balloon (OK, I’m using literary license here), gold took a big hit: Near-term futures in New York sank $26.80, or 3%, to $867.90 an ounce.

The price now is off 13.5% since the metal peaked at $1,003 on March 18.

Gold’s woes today stemmed from a jump in the dollar, a move that Bernanke and the White House helped engineer, as I explain here.

Gold is, in effect, a rival currency. When the dollar is being devalued -- which has been the major trend since 2001 -- gold shines as an alternative. The flip side is that a rising dollar often dims the appeal of gold to investors and speculators.

As for the metal’s role as an inflation hedge, a turn in the dollar hurts on that count, too, because a stronger greenback is potentially anti-inflationary (it makes imports cheaper, for example).

Even before the dollar’s revival this week, though, gold has been having trouble sustaining a rally since it crested the $1,000 mark.

Those record prices have caused some potential buyers to balk: The World Gold Council said global gold consumption slumped 16% in the first quarter from a year earlier, to 701 tons. And jewelry demand, which accounts for the lion’s share of gold consumption, tumbled 21% in the quarter to 445 tons, the lowest since 1993.

Still, some gold bulls are undaunted -- particularly those who believe the public is inexorably losing faith in paper currencies.

For sheer hyperbole, you can't beat this quote from a Bloomberg interview Tuesday with Peter Hambro, co-founder of London-based Peter Hambro Mining, which mines gold in Russia: The metal, he said, would attract more buyers because of "fundamental mistrust of the financial system of all inhabitants of the world."

That would be a lot of gold buyers, if he's right.

Photo: American Gold Eagle coin. Genaro Molina/Los Angeles Times

Comments

[Marty]

jsmineset dot com explains this bs stunt by the government using our own money to rig the gold market to make it look like the US dollar is going to keep going up.