TODAY’S CURRENCY AND FINANCIAL WARS 123Currency wars are like a see saw — they go back and forth
and back and forth. In 2011, for example, we saw a very weak
dollar. We also saw a very high price of gold. That was the all-
time high — about $1,900 per ounce. Since then, the dollar
has gotten much stronger and gold has come down a lot.
It’s a very simple correlation. If you want to understand
gold, the dollar price of gold is just the inverse of the dollar.
It’s simple, but many investors don’t understand the dynamic.
If we have a weak dollar, gold’s going to go up. If we have
a strong dollar, gold’s going to go down.
If you’re interested in gold or other hard assets you need
to pay attention to the dollar. Many investors ask me “What’s
the dollar really worth?” I always reply, “Compared to what?”
Everything is a cross rate. There’s a dollar/euro cross rate.
There’s a dollar/yen cross rate. There’s a dollar/yuan cross
rate, a dollar/franc cross rate and so on. They’re very dynamic
because the dollar could be going up against the euro, which
at writing, it has been, but at the same time it could be going
down against the Chinese yuan.
Investors can profit from these dynamics if they can under-
stand them. Any two currencies are part of a zero sum game.
That’s another thing that confuses investors. They say, “Oh, the
euro’s falling apart. The euro’s got to go down.”
That may or may not be true. But what investors miss is
that the Fed wants the dollar to go down too. But the dollar
and the euro cannot both go down against each other at the
same time.
Lately the dollar’s been going up and the euro’s been going
down. But if you know the Fed wants a weak dollar and you’re
seeing a strong dollar, what does that mean? It means the Fed
has to do something to make the dollar go down. That, in turn,
means the euro must go up.
In other words, the dollar and the euro can’t go down against
each other at the same time. It doesn’t work. Once you under-