With gold hovering near $500 an ounce, the barbaric relic is finally getting some attention -- from the Wall Street Journal, for one, in the form of a bylined article, “Gold Flirts With $500,” that hit the Dow Jones newswire on Tuesday afternoon. Be patient, dear gold bugs, since it could be another year or two before the likes of Newmont and Barrick make the cover of Forbes. For the moment, though, the mainstream media’s interest in bullion has perked up like the nose of a hound-dog in an airport baggage bay.

We read in the Journal that gold’s sharp rise in recent weeks has been driven by “a combination of strong physical demand from India and China, central-bank buying and demand from inflation-wary institutional investors.” But with the dollar continuing to strengthen against  the yen and euro, an interesting question arises -- namely, how long can this go on? I have argued here before that the dollar is not threatened by gold’s bullish behavior, and that, moreover, the demand for dollars will remain strong so long as financial speculation continues to rule the global economy.

If correct, we should expect the fall of the yen and euro to accelerate relative to both gold and the dollar. After all, why should these trends reverse if they haven’t already? There were a dozen perfectly logical reasons why the dollar should have plunged last year; yet, it did not. A rising dollar is about the last thing that a world burdened by mountainous dollar-debt needs, and that is why Murphy’s Law will continue to obtain in the greenback's favor. Speculators who are betting otherwise are playing chicken in a hot-rod with a sticky throttle. If and when the pedal gets to the floor, there will be no slowing down.    

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