Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold And Interest Rates – There Is No Correlation

Commodities / Gold and Silver Stocks 2018 Apr 30, 2018 - 02:11 PM GMT

By: Kelsey_Williams

Commodities

Over and over again, the following statement or something similar continues to find its way into commentary about gold:

“…prospects of higher US interest rates have the ability to limit upside gains. It must be kept in mind that Gold is a zero-yielding asset that tends to lose its allure in a high-interest rate environment”  

A variation of that statement:

“Because gold doesn’t bear interest, it struggles to compete when interest rates rise.” 


The statements imply a correlation between gold and interest rates. And the implied correlation suggests that higher interest rates result in lower gold prices.

If that is the case, then there should be some historical precedent to corroborate the correlation. There is. And we only need to go back a few years or more to find it. But it does not corroborate the correlation; it refutes it. 

During the ten-year period 2001-2011, gold’s price increased from $275.00 per ounce to a high of nearly $1900.00 per ounce. And interest rates continued their long-term decline throughout that entire period.

In this example the original correlation is inferred to be supported by the opposite scenario  – lower interest rates and higher gold prices. So far, so good.

However, let’s go back a bit further along the time line. Between 1970 and 1980, the price of gold increased from $35.00 per ounce to $850.00 per ounce. But rather than declining, interest rates were on a tear.

Rather than “struggling to compete” gold was galloping ahead in the face of ever higher interest rates and increasing lack of demand for higher-yielding investments.

The higher rates were a reflection of lower prices for bonds and particularly U.S. Treasury securities. The 10-year U.S. Treasury bond yield exceeded 15%. Which makes you sort of wonder when you read something like this:

Higher rates boost the value of the dollar by making U.S. assets more attractive to investors seeking yield.” 

Two ten-year periods of outsized gains in the price of gold. And interest rates were doing something exactly opposite during each period. There simply is no correlation between gold and interest rates.

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.

But is there something that correlates with gold? Anything at all? Why does its price change? And so dramatically, it seems?

With respect to gold and its price changes, there is only one thing that correlates. The U.S. dollar.

The U.S dollar is a substitute for gold. Gold is original money. 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.

Gold is the standard; not the U.S. dollar. Gold has earned its designation as real money over five thousand years of history. It is original money. And it is real money because it is a store of value.

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.

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. No correlation there, either.

That is 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 re: gold.

Without taking into account the relative strength or weakness of the U.S. dollar relative to gold’s price, any other correlations are either meaningless, misleading, or contradictory.

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.

Gold Prices: 100-Year History                source

The U.S. dollar is the world’s reserve currency and gold trades are settled in U.S. dollars. Since gold is priced in U.S. dollars and since the U.S. dollar is in a state of perpetual decline, the U.S. dollar price of gold will continue to rise over time.

There are ongoing subjective, changing valuations of the U.S. dollar from time-to-time and these changing valuations show up in the constantly fluctuating value of gold in U.S. dollars. more

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2018 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules