Gold/Dollar Correlation
"Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today."
-Peter A. Burshre
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Is there anyone left that does not believe Gold and the Dollar are highly (inversely) correlated?
Source: Chart of the Day
Monday, March 10, 2008 | 03:00 AM | Permalink
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there are enough medium- and short-term swings to make the long-term correlation meaningless for practical investing...
Posted by: Missed | Mar 10, 2008 3:25:29 AM
Ha! Back in 1998 you couldn't have bought something off the rack at TJ MAXX with your ounce of gold.
Posted by: C. Maoxian | Mar 10, 2008 4:26:40 AM
A three year chart proves nothing. I am sure I can find a three year period over the last 30 years where gold and the dollar are not inversely correlated. Second, correlation does not prove causality.
Posted by: Eric | Mar 10, 2008 6:36:38 AM
I used to sell gold coins and the mantra there was, "If you walked into a grocery store in 1918 with a $20 gold piece you could fill your entire station wagon with groceries. If you walked into one today you could do the same thing.." Only now I guess you can fill a semi with food.....
Posted by: Howard Veit | Mar 10, 2008 6:45:30 AM
I don't believe it.
Posted by: wally | Mar 10, 2008 8:20:04 AM
The US$ index scale is normal and rises about 35%....the gold scale is log and doubles. talk about curve fitting......
Posted by: brent | Mar 10, 2008 8:22:44 AM
You can get a men's suit at Brooks Brothers for about $600.
An Armani suit goes for about $900 to $1,150.
Posted by: George | Mar 10, 2008 8:56:31 AM
Gold's price has bee fixed since FDR/Bretton Woods II (never forget that the government had to force the populace to turn in their gold). Forcing a fixed price was easy as long as the fiat system (pyramid) was expanding. Now that the weaknesses of he fiat system are popping up all over the place (the pyramid collapse), the Central Bankers can no longer afford the time, attention, or money (whatever that is) to keep prices of gold in check, and the price has risen accordingly - in all currencies.
It must be disorienting and scary when something you don't believe in materializes right in front of your face.
Move towards the golden light...
Posted by: Marcus Aurelius | Mar 10, 2008 9:11:48 AM
1/3 falling dollar .. 2/3 fallacy of composition.
BTW, did I tell you about how my mortgage repricing caused my monthly payment to actually go down (only 1 cent, but it still went down.) If it repriced a couple of weeks later, the repricing rate would have gone down 40 - 50 basis points.
Sounds like we have real trouble in River City (not).
Or is some idiot going to claim that I am the only one who will benefit from repricing based on lower interest rates? And that everyone else in the world is subprime and spreading the Black Death to everybody else.
Maybe these variable rate loans are OK after all. I've got the biggest shit eating grin you've ever seen. Just to be clear, I'm at 4.875 on my mortgage for another year. Woo Woo Woo!
To me, it looks like the 'sky is falling crowd' has peaked. Reality is showing itself. It turns out we are in an asset bubble of bad news, which is starting to pop. The economy has bellyache. The bad news industry has morphed a temporary ailment into a catastrophic event, and wants to stay on the front page by keeping the fear meter ramped up to maximum.
Posted by: cinefoz | Mar 10, 2008 9:18:12 AM
Wow cinefoz...you are really stretching there. That's all you got? Variable rate mortgages are OK b/c your rate adjusted -.01 for a year?
Once again, you are behind the times. People aren't mailing in their keys b/c they can't pay the bill, but are mailing in the keys b/c they don't want to be paying on a property they are underwater 6 figures on.
Nice try, though....
Posted by: Mr. Obvious | Mar 10, 2008 9:31:33 AM
It is supposed to be a custom fitted mens suit designed and tailored from scratch.
For a U.S. citizen, gold was priced at $35/oz fixed but you could not legally own it. It was however traded internationally.
Kroger ran a bread special this weekend, 10 loaves for a dollar. The sign in the store said it contained trans fat wasn't good for you and besides they didn't have any.
Posted by: Ross | Mar 10, 2008 9:31:59 AM
Cinefoz:
I'll ask you again: What's the value of the house vs. the mortgage amount? Did your gas and food prices go down? How many cars are selling at your local dealerships? Are businesses hiring in your area, and if so, are they paying a reasonable wage compared to the cost of living locally? Has the inventory of houses on the market dropped?
The vehicle is not a complete loss, because the radio still works - and it's a good radio.
You ask people not to say they you are the only one whose interest rate went down - I ask you you to show me others.
You think you will be vindicated. I think you will not. Time will tell.
Posted by: Marcus Aurelius | Mar 10, 2008 9:34:49 AM
Out of curiosity, who decided that gold was to be used as a hedge for a weakening US $, but not other currencies? For instance, if the Euro were to begin weakening, could the Germans buy gold as a vehicle to hedge their currency?
Posted by: Alain Prost | Mar 10, 2008 9:39:15 AM
Marcus Aurelius,
I know how to cook and am good at it. Anybody else can do the same.
I also know how to shop and very likely spend less than most people while eating better than most people.
You can whine and wring your hands, or you can do something about it.
Re fallacy of composition ... look it up.
Posted by: cinefoz | Mar 10, 2008 9:41:40 AM
If you hear whining, it must be the bees in your bonnet.
No hand wringing here.
So, how about the autos, interest rates (other than yours, and other than ARMs). How's the economy in your area doing?
"I also know how to shop and very likely spend less than most people while eating better than most people..."
Truly a cut above everyone else. Amazing.
You must have enough ego mass to generate your own private gravity, weather, and economy.
Good luck wit dat.
Posted by: Marcus Aurelius | Mar 10, 2008 10:00:29 AM
It depends on one's definition of quality. I opt for beach attire during the work day (I'm a trader) but if I must wear a suit for a special occasion, it is bespoke and costs a bit more than an ounce of gold. Speaking of gold, ZG has been a phenomenal ride - yeehah!
Posted by: Bud | Mar 10, 2008 10:23:12 AM
P.S. lol, these debates between cinefoz and Marcus Aurelius are almost as good as the MMA bouts...."ground & pound at TBP"
Posted by: Bud | Mar 10, 2008 10:27:32 AM
Someone is very pissed with their broker.
Posted by: Ronit | Mar 10, 2008 10:34:04 AM
notice Cinefoz has not been mentioning how well he is doing with all of his long stock positions he was blathering on about a month or so ago.
Instead, he is talking about how good a bargain shopper and cook he is. Hmm, I wonder if that is some sort of correlation worth exploring...
Posted by: observer | Mar 10, 2008 11:03:33 AM
You'll find a much stronger correlation between the price of oil and the price of gold. The two move almost in tandem, and have done so over the very long term (100 years+).
Correlations between the dollar and gold are more of a short term phenomenon.
Posted by: AlanY | Mar 10, 2008 11:31:23 AM
>> I know how to cook and am good at it. Anybody else can do the same.
>> I also know how to shop and very likely spend less than most people while eating better than most people.
Good for you, cine. But, looking at your comment about how you live under your means, let me ask you this: are you trying -- or even thinking about trying -- to save money a little more than usual? A few dollars here and a few dollars there?
What if others are doing the same? (E.g., I'll tell you I am.) It's this collective change of behavior that leads to recession.
Posted by: wunsacon | Mar 10, 2008 11:44:59 AM
I've searched and searched but I cannot find that rarest of species, the Dollar Bug.
You know, it is the guy who hoards currency won't spend it and sold all his gold at $250/oz because he KNEW that once everyone recognized that there was a shortage of dollars, his boatload would go up. By then gas will be 49c a gallon and tuition at Harvard would be $4,800/yr.
Posted by: Ross | Mar 10, 2008 11:47:57 AM
Alain Prost,
Good point. Last time I looked, Asia was a significant driver of demand for gold (and USD too, for that matter). I suspect the recent run has as much to do with rising Asian wealth as with the weakening USD.
Posted by: Estragon | Mar 10, 2008 12:03:11 PM
I never liked the gold/dollar correlation theory. But since silver has a correlation of following gold in direction, it works for me.
Posted by: Pat G. | Mar 10, 2008 1:00:31 PM
wunsacon,
Thank you for recognizing my thriftiness.
Actually, I've always lived under my means. This is why I have the cash to be an investor / trader now.
I'm long now. I sold all on 11-1-07 and bought back in mid to late January 2008. I retained all my 2007 profits. I spent some, and put the rest to work in 2008. Unless the market falls of a cliff for the first time in history, I will make a lot in 2008.
To come to the point, I have several major purchases planned for this year and for the next few years. All relate to my home. I'm basically converting stock market profits into home oriented assets. The rest will finance my retirement down the road.
Living frugally does not mean living cheap. Only idiots piss away everything that comes in.
Posted by: cinefoz | Mar 10, 2008 1:02:53 PM
