Tuesday , 12 November 2019


How Swings In USD Affect Price of Gold

Swings in the US dollar have no long-term impact in the price of gold…[and] gold [isn’t] an inflation hedge [either so what is it then? Read on!]

Day-to-Day Gold vs. USD Index
While gold generally moves opposite the dollar in day-to-day fluctuations, long-term impacts are non-existent.

Long-Term Gold vs. USD Index

Below is the chart with the index of gold and the dollar set to the same base year, 1997.

Gold vs. the CPI

Gold fell from $850 to $250 from 1980 to 2000 with inflation every step of the way.

…[Given the fact that inflation is understated, though, one can conclude that]…gold is even less of an inflation hedge – but there is one exception…[and that] is extremely high rates of inflation, especially hyperinflation.

In case of hyperinflation, nearly any storable physical asset is a hedge: cheese, cigarettes, gasoline, etc. so, in case of hyperinflation, there is [actually] nothing unique about gold as an inflation hedge.

Summary of the above:

Gold isn’t

  1. A function of the US dollar in any meaningful way
  2. A measure of inflation
  3. A good hedge against inflation, except extreme inflation and hyperinflation where any storable asset is a hedge

…so what is it?

Gold Is A Measure of Faith in Central Banks

…[As can be seen in the chart below] the price of gold is primarily a measure of faith in central banks [so,] if you believe central banks have everything under control, don’t buy gold.

Conclusion

If you believe monetary madness, negative interest rates, and negative rate mortgages prove central banks do not have things under control, then you know what to do – buy gold!

Editor’s Note:  The above excerpts have been taken from the original article by Mike “Mish” Shedlock and has been edited ([ ]) and abridged (…) for the sake of clarity and brevity.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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