Tags: Tamny | gold | economy | dollar

Forbes’ Tamny: Gold’s Drop a Good Sign for Economy

Monday, 22 Apr 2013 09:14 AM

By Dan Weil

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The recent price plunge in gold isn’t as bad as it may look, says John Tamny, editor of Forbes Opinions and RealClearMarkets.

Indeed, it could be good for the economy, injecting strength into the dollar, he writes in The Wall Street Journal.

The precious metal has 27 dropped percent from its September 2011 high of $1,921, trading at $1,428 Monday morning.

Editor's Note:
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“The recent decline in the price of gold … is cause for cautious optimism,” Tamny says.

“Gold's recent weakness points to renewed dollar strength and, if this strength is maintained, may preview reorientation of precious capital away from dollar-devaluation hedges and toward investments in … new entrepreneurial endeavors and industries.”

The Dollar Index has gained 3.5 percent so far this year.

“Savers, unemployed workers and the broad economy have suffered long enough from a weak dollar and slow growth,” Tamny writes.

In the 1970s, the price of gold rose, while the value of the dollar declined. With a weaker dollar, “there was a massive redistribution of wealth away from savers and equity investors, and with that redistribution a capital deficit for companies eager to grow.”

“A strong dollar would energize the savers as it did before, and savings are the economic tonic needed to get Americans working again.”

Tamny sees a parallel to January 1980, when gold peaked after a decade of huge gains. Those gains accompanied the economic stagnation of the 1970s, while gold’s drop in the 1980s presaged economic strength.

To be sure, for the short term at least, gold is engaged in an upward correction.

“The gold price is finally reacting to the physical demand,” Tim Gardiner, a managing director at TD Securities, tells Bloomberg.

“Reports of record demand keep coming in from around the globe with retailers in North America, Europe and Asia-Pacific all out or running out of stock as buying interest overwhelms supply.”

Editor's Note: Get David Skarica's Gold Stock Adviser — Click Here Now!

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