“A lasting solution would be to recognize explicitly that market prices, reflected in the yield curve and gold price have been the most reliable signals of the global demand for dollar liquidity. The daily correlation between gold and the dollar has been in the −0.9 range over extended periods, whereas the correlation coefficient for the euro and gold over the last year has been in the +0.7 range. The negative correlation does not suggest that increases in gold prices signal U.S. inflationary upticks. Rather, it signals decreased global demand for dollar liquidity. The Fed can react to this signal and take a counteractive measure absorbing the unwanted liquidity. Thus, finding no correlation between changes in gold prices and changes in U.S. inflation should not be surprising. 

Gold’s role in a monetary system has never been mere convertibility. Instead, it has been to signal both control and alarm—it’s a “put” on the dollar and other paper currencies.” Read more. 

“The U.S. Dollar and Prosperity: Accidents Waiting to Happen” 
Reuven Brenner 
Cato Journal, Vol 26, No 2 (Spring/Summer 2006)

Special thanks to Reuven Brenner for sending this article.
(Here is a link to the Brenner and Fridson piece posted earlier.)

Image by Michal Marcol / FreeDigitalPhotos.net.