Dollar & Gold: Two Peas In A Pod (Not Really)

The Odd Couple of the Currency Markets
You dont have to be an economist or trader to understand the relationship between the U.S. dollar and gold.
I can sum it up in one sentence: The U.S. dollar and gold are polar-opposites. Theyre as different as Felix and Oscar -- the two roommates in The Odd Couple . A fall in the value of the dollar represents a rise in dollar value of gold. Thats just the way it is. And thats the way it will remain as long as we live in a world where the dollar is backed by nothing but false promises, while gold still represents real value.
U.S. politicians in the 20th century severed the link between the dollar and gold for one simple reason: With a gold-backed monetary system, or gold standard, the politicians had to watch what they spent. Under a gold standard, gold gets drained away from countries that lack fiscal discipline. Instead, the yellow metal flows into countries where politicians have learned to discipline their desires to spend.
Politicians came to understand that money manufactured on promises is virtually unlimited.

If they took the gold standard away, they could spend as much as they liked. They could also buy all the votes they wanted with dozens of spendthrift policies. Apparently politicians chose to ignore the fact that this lack of economic sense spawned one global currency crisis after another in past.
We all inherited whats left of this economic policy. Were left with a global monetary system whereby a massive amount of real goods and services are traded across national borders for intrinsically worthless pieces of paper. Does that strike you, as it does me, as being a bit odd?
Now this paper-for-value exchange wouldnt be quite so strange if governments were only willing to keep their promises. But the U.S. government and institutions are failing miserably on that score. We have shifted from the worlds major creditor nation to a debtor nation, the likes of which the world has never seen. The really amazing part is this shift has all happened during my lifetime. When you ponder the scope of that, its downright terrifying.
We hold most of our wealth in dollars backed by promises from a government that must rely on others to make good on those promises. Is it any surprise why gold continues to rise in value as the buck beelines toward new all-time lows? The only surprise is why gold hasnt surged even more.
When the link between money and value is severed, its only a matter of when not if a currency crisis will arrive. When that happens, you want to be holding some tangible assets like gold rather than IOUs from a discredited government that cant keep its promises.