…If you are interested in attending a pep rally for much higher gold prices, move on. You won’t find it here. That doesn’t mean that gold prices can’t go much higher – they can – but calls for new highs in gold within the next year…is a fool’s game. The odds for success are very long….
Some claim that the fundamentals for gold – interest rates, debt levels, inflation, trade war, poor economic conditions, concern about stock market(s), social unrest (terrorism, war), political problems, etc., etc. are driving its price higher, but are they? Let’s take a look.
It seemed obvious to some that, as the Fed tightened and interest rates began to rise, that gold would decline in price…[because] gold paid no dividends…[and, as such,] was not competitive with interest-bearing obligations such as bonds so, as interest rates rose, gold would lose value with the implied assumption that lower interest rates would make it more attractive as an alternative investment. In reality, however, there is no correlation between gold and interest rates as I explained at length in a previous article. Some have said that the argument about correlation of interest rates and gold depends on making a distinction between real interest rates and nominal interest rates but there is no correlation there, either, because any patterns that appear to confirm correlation between real or nominal interest rates and gold need to include the U.S. dollar. The U.S. dollar is the determining correlative factor regarding gold.
Additionally, there is no correlation between gold and 1) social unrest, or 2) global terrorism; or 3) world wars. Gold is not a safe haven hedge and it is not an investment. It is real money.
Is there something that correlates with gold? Anything at all?…[Yes,] the U.S. dollar…The price of gold is an inverse reflection of the changing value of the U.S. dollar. The ongoing, never-ending, deterioration of the dollar’s value means ever rising gold prices over time…and there is historical evidence to support the correlation of gold’s price to the value of the U.S. dollar.
- Every change of significance in time and price for gold correlates with an inverse change in the value of the U.S. dollar.
- Higher prices for gold correlate with a lower value for the U.S. dollar.
- Lower gold prices correlate with stability and strength for the U.S. dollar.
The correlation between gold and the U.S. dollar is implicit. One does not ’cause’ the other. Either one is the inverse of the other…
There are six major turning points (1920, 1934, 1971, 1980, 2001, 2011) on the chart below. All of them coincided with – and reflect – inversely correlated turning points in the value of the U.S. dollar.
Editor’s Note: The above excerpts from the original article by Kelsey Williams have 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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