Inflation Correlation: Gold vs. DXY Insights
Above is an attempt to solve the age-old question of whether or not inflation exists, and, if it does, how much of it is floating around in today's environment?
I like gold because it makes a market that is purely free from exogenous intervention. You can be sure that the changes in the spot price of Gold are reflective of either one or two things:
1) society's demand (typically, lack thereof) for government intervention
2) accounting of monetary supply
But, what I would like to understand is which one of these factors is driving up the price of gold during any given rally. In the chart above, I created a "real-demand" gold price line (orange) that equates as follows: Gold_realdemand = Gold.spot * (100/DXY). Essentially what this does is drown out the effect that changes in the dollar index have on the changes in gold's spot price. The purpose of doing this is not to present a standalone, transformed data series; the orange line in and of itself is only insightful when compared with the normal spot price of gold.
That is, when the slopes of each data series diverge, that is when you can see the relative changes in actual demand.
For example, both major gold rallies depicted in the chart above (white arrow, purple arrow) are actually showing the same thing; gold spot increased because of quantitative easing of some kind. Even if there is a clear margin between the two rising graphs, that does not imply a change in actual demand for gold. Rather, the difference between these would theoretically be "inflation" under this experiment.
Thus, it is better to investigate the downward, bearish periods where divergence occurs in order to get a feel for actual demand in physical gold.
Why?
Because there is never a time when the FED has decreased the money supply, as far as my understanding of the past 10 years goes.
Anyway, just thought this might be an interesting finding given the latest excitement over interest rates.
-GoldDollahPig
GOLD
XAUUSD
DXY
XG7U
XAU
I like gold because it makes a market that is purely free from exogenous intervention. You can be sure that the changes in the spot price of Gold are reflective of either one or two things:
1) society's demand (typically, lack thereof) for government intervention
2) accounting of monetary supply
But, what I would like to understand is which one of these factors is driving up the price of gold during any given rally. In the chart above, I created a "real-demand" gold price line (orange) that equates as follows: Gold_realdemand = Gold.spot * (100/DXY). Essentially what this does is drown out the effect that changes in the dollar index have on the changes in gold's spot price. The purpose of doing this is not to present a standalone, transformed data series; the orange line in and of itself is only insightful when compared with the normal spot price of gold.
That is, when the slopes of each data series diverge, that is when you can see the relative changes in actual demand.
For example, both major gold rallies depicted in the chart above (white arrow, purple arrow) are actually showing the same thing; gold spot increased because of quantitative easing of some kind. Even if there is a clear margin between the two rising graphs, that does not imply a change in actual demand for gold. Rather, the difference between these would theoretically be "inflation" under this experiment.
Thus, it is better to investigate the downward, bearish periods where divergence occurs in order to get a feel for actual demand in physical gold.
Why?
Because there is never a time when the FED has decreased the money supply, as far as my understanding of the past 10 years goes.
Anyway, just thought this might be an interesting finding given the latest excitement over interest rates.
-GoldDollahPig
GOLD
XAUUSD
DXY
XG7U
XAU
Comment:
Well, I think ive seen it all now.
After another ~1.9 trillion printed, the only asset up is the dollar index.
Goodness.
After another ~1.9 trillion printed, the only asset up is the dollar index.
Goodness.
Again, could be your run-of-the-mill institutional short barrage, but this feels different.