HardAssetsInvestor

Written by Brad Zigler  |

February 14, 2011

Monday Morning Hangover

Details

Fridays, as many readers of the column know, are given over to the weekly Inflation Scorecard, where a variety of market indicators are recapped to gauge the strength of the U.S. dollar. Among the myriad data points provided in the Scorecard is a reading of the Monetary Inflation Index.

The index is a proprietary measure of the greenback's gold purchasing power compared to that of its competing reserve currency, the euro. This notion left some of last week's readers scratching their heads wondering if the difference between gold's dollar value and its euro price reduces to nothing more than the dollar/euro cross rate.

It doesn't.

Well, let me rephrase that. It doesn't now. There have been times when the Monetary Inflation Index and the exchange rate have hugged each other closely. Now's now one of those times.

Regard the chart below, which tracks the inflation index and the EUR/USD cross rate. Both are normalized to the January 1999 launch of the common currency.

Monetary Inflation Index Vs. EUR/USD Rate

Since 1999, the euro's gained ground against the dollar, as has gold. Not without some volatility, mind you, and at decidedly different rates. The euro's now 17 percent higher than its debut date. Monetary inflation's risen 69 percent over the same period.

We'll dig more deeply into this and other inflationary issues in future columns. After the hangover subsides.

Happy Monday.