Gold And FRN$ Correlation

The FRN$ has been the world’s reserve currency for decades.  As a result, the breadth and depth of the capital markets add tremendous liquidity to the fiat currency illusion.

This is one of the reasons the FRN$ is near the bottom of the liquidity pyramid and rises in value with each round of the credit contraction. But as continuing pressure keeps being added to the FRN$ through bailouts, inflation, swaps, etc. it will hasten towards the fiat currency graveyard as commodity currency alternatives gain prominence.

The secular gold bull market has entered stage two and continues pulling in capital.  This has led to a large multiple of the gains inverse to the FRN$ decline.  But more importantly and more often gold and the FRN$ are strengthening together.  This is because of their respective positions in the liquidity pyramid.

So as the FRN$ continues its evaporation the Ancient Metal of Kings will do what it has always done; preserve capital.  As it has performed this function over the last eight years it has also increased in purchasing power.  As gold enters the third stage of the bull market, which is still likely several years away, it will strengthen even more often while the FRN$ both advances and declines.

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Trace Mayer

RuntoGold.com

Trace Mayer, J.D., holds a degree in Accounting from Brigham Young University, a law degree from California Western School of Law and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. He is a strong advocate of the freedom of speech, a member of the Society of Professional Journalists and the San Diego County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows and presented at many investment conferences throughout the world.