The slowing of the U.S. economy and the rise of the U.S. dollar could make gold exchange traded funds (ETFs) very attractive.

On Nov. 20, the U.S. Dollar Index Futures Spot price closed at $88.23 and gold futures settled around $818.40/oz, a big shift compared to March, when the U.S. Dollar Index traded around $72.00 and gold traded around $1,032.70/oz.  This inverse relationship between the U.S. dollar and gold is generally tied to the fundamentals of inflation, states Gregory Davis of G. Davis Capital Inc.

Advocates of gold suggest that it is a safe bet, especially if the U.S. dollar retreats. It’s a great tool to hedge with if investments are traded or invested in depreciating currencies. Research suggests that worldwide gold production is not keeping pace with consumption and the demand for gold continues to increase in gold-producing countries, such as India, as per-capita wealth in these countries continues to rise.

Lastly, the U.S. dollar is believed to weaken on diminished investor confidence as a result of the excess debt the United States will pick up from its $700 billion bailout package and the ongoing wars being fought in the Middle East.

Some believe gold is not the answer of the future.  With falling crude oil prices and talks of improving interest rates worldwide, deflation may actually be in the offing.  As of now, foreign countries still have confidence in the U.S. dollar, which can be seen in the surge of investing in short-term debt securities, driving demand up.

SPDR Gold Shares (GLD): down 1.9% year-to-date

iShares COMEX Gold Trust (IAU): down 1.6% year-to-date

Tags: GLD, Gold, IAU, Precious Metals, U.S. Dollar