De Obama Dolla Goin' "Cheep Cheep Cheep!"

Gold has been surging of late, and yesterday it hit an all-time high of roughly $1,280/ounce. Supply/demand theory would likely say that demand for the yellow metal is outstripping supply, but this would be mistaken thinking.

Instead, gold is expensive right now because the dollar is cheap. _RCM

The price of gold has risen to record levels recently, in terms of the US dollar. But pricing things in terms of the US dollar can be deceiving if one does not correct for government-induced shrinkage.

Unique among commodities, nearly every ounce of gold ever mined is still with us today. In numerical terms, there are roughly 148,000 metric tons of gold on earth, and the supply of newly discovered gold each year usually works out to 2,000 metric tons.

The above-mentioned stock/flow disparity explains neatly why gold has been used as a money measure for thousands of years. Lacking any major industrial purposes that lead to its consumption like oil, gold discoveries are merely additive to the global stock, and with new, annual discoveries very small relative to the total supply, the price of gold is enormously stable in real terms.

To put it more simply, when the price of gold fluctuates it's a signal of dollar (the currency in which it's priced) instability, as opposed to a gyrating price of the metal itself. And with gold presently more expensive in dollars that it's ever been in history, the most monetary of all metals is signaling that the dollar is the weakest it's ever been.

The culprit for the dollar's decline is pretty basic. Despite the fact that the Federal Reserve issues dollars, it's the U.S. Treasury that is the dollar's mouthpiece, and just last week Treasury Secretary Tim Geithner signaled his and the Obama administration's preference for a weaker greenback. _RealClearMarkets

By similar logic, the current price of oil is not nearly as high as you might think, given the amazing, the shrinking, Obama dollar (it be cheep, mon!).

The cheap dollar is not the main cause of the dismal outlook for the US economy, but it doesn't help. As the hyper-leveraged, hyper-regulated US economy tries desperately to find a way out of its government-induced and bottomless recession (you don't believe those government numbers, do you?), the Obama Pelosi regime simply passes new legislation to shut any peepholes of economic sunshine that may remain.

Remember: no matter what the Fed decides on interest rates, US interest rates will be headed up. Otherwise, no one will buy US debt in the near to intermediate future. That would only leave the printing press to pump out the Obama dollas as payment for goods and services rendered. But remember: One trillion multiplied by zero still equals zero.