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Gold prices exploded upward last week, gaining almost $100 per ounce. This 5.5% weekly gain took out the two previous highs set in September and October, with prices closing the week at $1,769.40 per ounce.
This move in gold was inversely correlated with a sharp decline in the U.S. dollar.
Last week we noted that these trend reversals in gold prices and the U.S. dollar could signal a new uptrend in gold prices.
This signal may prove to be spot on. The key is the inverse relationship between gold and the U.S. dollar. Although the dollar had surged higher year to date against other currencies, U.S. inflation will eventually erode the value of the currency, leading to an increase in the dollar value of gold. In the end, gold remains a hedge against inflation.
Rick Andrews is president of Avant Capital Management.