Gold’s bull market ebbs as the dollar tries a comeback

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Rising inflation pressures are a serious threat, as Fed chief Bernanke has been telling us over and over again lately.

Yet the premier inflation hedge -- gold -- has been struggling since crossing the $1,000-an-ounce mark for the first time in mid-March.

And today, after Bernanke repeated in a speech late Monday that the Fed wouldn’t allow inflation to take off like some helium balloon (OK, I’m using literary license here), gold took a big hit: Near-term futures in New York sank $26.80, or 3%, to $867.90 an ounce.

The price now is off 13.5% since the metal peaked at $1,003 on March 18.

Gold’s woes today stemmed from a jump in the dollar, a move that Bernanke and the White House helped engineer, as I explain here.

Gold is, in effect, a rival currency. When the dollar is being devalued -- which has been the major trend since 2001 -- gold shines as an alternative. The flip side is that a rising dollar often dims the appeal of gold to investors and speculators.

As for the metal’s role as an inflation hedge, a turn in the dollar hurts on that count, too, because a stronger greenback is potentially anti-inflationary (it makes imports cheaper, for example).

Even before the dollar’s revival this week, though, gold has been having trouble sustaining a rally since it crested the $1,000 mark.

Those record prices have caused some potential buyers to balk: The World Gold Council said global gold consumption slumped 16% in the first quarter from a year earlier, to 701 tons. And jewelry demand, which accounts for the lion’s share of gold consumption, tumbled 21% in the quarter to 445 tons, the lowest since 1993.

Still, some gold bulls are undaunted -- particularly those who believe the public is inexorably losing faith in paper currencies.

For sheer hyperbole, you can’t beat this quote from a Bloomberg interview Tuesday with Peter Hambro, co-founder of London-based Peter Hambro Mining, which mines gold in Russia: The metal, he said, would attract more buyers because of ‘fundamental mistrust of the financial system of all inhabitants of the world.’

That would be a lot of gold buyers, if he’s right.