Dollar Index Disguises Global Inflation Threat

Friday, October 19, 2012
By Paul Martin

BY JONATHAN KOSARES
FinancialSense.com
10/19/2012

When the U.S. Dollar Index peaked at 120.51 in January of 2002, few suspected that it was on the brink of a one-directional correction that would ultimately erase a third of its value. In fact, in just three short years, the dollar index shed, on average, a point a month before ultimately hitting a low of 80.77 in January of 2005. This sharp decline in the dollar index coincided with, and largely fueled, the first few years of the now decade-old bull market in gold. Those participating in the gold market in those first few years were taught ‘at a young age’, so to speak, that the dollar and gold were inseparably linked. If one wanted to know what was going on with gold, one would look no further than the dollar index. If the index fell, gold would rise, and if it rose, gold would fall. Even today, financial media outlets still ‘explain’ the daily movements of the gold price in this same context of corresponding activity in the dollar index. If the dollar index is so important to predicting and explaining the value of gold, then how does one explain that seven years after hitting the low of 80.77, the dollar index is still trading in the same range – just above 80 today – yet gold has quadrupled?

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