Three Points

  • December 2004: US Dollar Index 108, Gold $435
  • April 2009: US Dollar Index 108, Gold $883
  • November 2014: US Dollar Index 108, Gold $1182

Gold vs Trade-Weighted Dollar Index 1973-Present

Image placeholder title

While gold generally moves opposite the dollar in day-to-day fluctuations, long term impacts are nonexistent.

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

Gold vs Trade-Weighted Dollar Index

Image placeholder title

Gold vs the CPI

Image placeholder title

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

What happened?

People had faith in the great "Maestro", Alan Greenspan.

But, But, But

But Mish, inflation is understated.

Indeed it is. Central banks are clueless regarding how to measure inflation. Bubbles are a direct consequence of inflation.

Note the implication: Because inflation is higher than reported, gold is even less of an inflation hedge!

RECOMMENDED ARTICLES

One Exception

There is one exception to the rule gold is not an inflation hedge.

The exception is extremely high rates of inflation, especially hyperinflation.

In case of hyperinflation, nearly any storable physical asset is a hedge: cheese, cigarettes, gasoline, etc.

There is nothing unique about gold as an inflation hedge in case of hyperinflation.

Three Things 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?

Image placeholder title

Measure of Faith in Central Banks

In addition to being money for thousands of years, the price of gold is primarily a measure of faith in central banks.

If you believe central banks have everything under control, don't buy gold.

But Why Have Faith?

  1. "Zero Has No Meaning" Says Greenspan: I Disagree, So Does Gold
  2. 30-Year Long Bond Yield Crashes Through 2% Mark to Record Low 1.98%
  3. More Currency Wars: Swiss Central Bank Poised to Cut Interest Rate to -1.0%
  4. Inverted Negative Yields in Germany and Negative Rate Mortgages.
  5. Fed Trapped in a Rate-Cutting Box: It's the Debt Stupid

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.

Mike "Mish" Shedlock

Gold's vs the US Dollar: Correlation Is Not What Most Think

Gold is not as correlated to the US dollar as most think.

Gold Surprisingly Correlated With the US Dollar

Since 2015, gold has been correlated to the US dollar. What's next?

Gold Soars, Dollar Sinks After US Treasury Praises Weaker Dollar

The US dollar continued its plunge today after US Treasury Secretary said a weaker dollar was good for trade.

Gold Blasts Through $1500: Message? Central Banks Out of Control, Not Inflation

Gold blasted through the $1500 level today. Let's analyze the message. Here's a hint: The message isn't inflation.

Exploring the "Dollar Crash" Thesis in Pictures

People have been predicting a crash in the US dollar for something like forever. Let's investigate another crash thesis.

Is Tax "Reform" Good for the US Dollar? How About Gold?

Let's investigate what happened after the last 3 major tax reforms. Another "reform" is on deck.

Reader "Worried about Inflation, Deflation, Stocks, Bonds, Gold, Everything"

A recently retired reader friend is worried about, inflation, deflation, bonds, stocks, banks, and gold.

Rate Hike Cycles vs. the US Dollar: Rate Hikes Bad for Gold?

Here are two different looks at Fed rate hikes since Volcker. The charts are the same, but one presentation is a lot funnier than the other.

In Praise of a Genuine Gold (Not Gold-Backed) Bond

Buffet dismissed gold because it pays no interest. But what if there was a genuine gold bond that paid interest in gold?