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


Is there anyone left that does not believe Gold and the Dollar are highly (inversely) correlated?


Source: Chart of the Day

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What's been said:

Discussions found on the web:
  1. Missed commented on Mar 10

    there are enough medium- and short-term swings to make the long-term correlation meaningless for practical investing…

  2. C. Maoxian commented on Mar 10

    Ha! Back in 1998 you couldn’t have bought something off the rack at TJ MAXX with your ounce of gold.

  3. Eric commented on Mar 10

    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.

  4. Howard Veit commented on Mar 10

    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…..

  5. wally commented on Mar 10

    I don’t believe it.

  6. brent commented on Mar 10

    The US$ index scale is normal and rises about 35%….the gold scale is log and doubles. talk about curve fitting……

  7. George commented on Mar 10

    You can get a men’s suit at Brooks Brothers for about $600.

    An Armani suit goes for about $900 to $1,150.

  8. Marcus Aurelius commented on Mar 10

    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…

  9. cinefoz commented on Mar 10

    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.

  10. Mr. Obvious commented on Mar 10

    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….

  11. Ross commented on Mar 10

    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.

  12. Marcus Aurelius commented on Mar 10


    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.

  13. Alain Prost commented on Mar 10

    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?

  14. cinefoz commented on Mar 10

    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.

  15. Marcus Aurelius commented on Mar 10

    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.

  16. Bud commented on Mar 10

    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!

  17. Bud commented on Mar 10

    P.S. lol, these debates between cinefoz and Marcus Aurelius are almost as good as the MMA bouts….”ground & pound at TBP”

  18. Ronit commented on Mar 10

    Someone is very pissed with their broker.

  19. observer commented on Mar 10

    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…

  20. AlanY commented on Mar 10

    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.

  21. wunsacon commented on Mar 10

    >> 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.

  22. Ross commented on Mar 10

    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.

  23. Estragon commented on Mar 10

    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.

  24. Pat G. commented on Mar 10

    I never liked the gold/dollar correlation theory. But since silver has a correlation of following gold in direction, it works for me.

  25. cinefoz commented on Mar 10


    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.

  26. Fred commented on Mar 10

    Mr. Obvious – variable rates in and of themselves are not bad. your reset is either better or worse than your teaser. the problem is the underwriting standards (especially no doc liar’s loans and 0% down loans). if you look at the geography of these things they are the obvious places and lower price points. yes, there is the story or two about the million dollar mcmansion that is a deadbeat BUT the majority are blue collar submarkets and for borrowers who would never have gotten a conforming mortgage. again, the losses will be sustainable and there will be a lot of surprise to the upside – which is why these things are being bought by the same RTC types who bought the toxic stuff in the 80s and early 90s. it’s not the loans – but the underwriting standards. the reversion to the mean necessarily involves a similar adverse reaction to lending and then we can resume some normalcy. again, the sky is not falling.

  27. Agoracom commented on Mar 10

    Cinefoz if that is the case then I truly commend you. I believe you made a mistake buying back in so soon but I’ll credit you with being right so far.

    However, you are anything but the typical American consumer…who “pisses away everything that comes in”. I will assume you agree and don’t need to go through the debt and savings stats.

    Gold is the canary in the coal mine and it is chirping loud and clear.

    Funny, when the Dow is up it is evidence of a healthy economy.

    But when gold is up, it is nothing more than the cries of “the sky is falling” crowd.

    Ignore it at your own peril. Though it is hard for Americans to believe their economy is in grave danger, your falling dollar and climbing gold is clearly signaling otherwise. The world is yet to lose complete faith – but it is clearly hedging its bet.

    FYI, on CNBC this morning, former AIG honcho Hank Greenberg said “if you believe the subprime issue is over, then you also believe in the tooth fairy.”

    Another panel member stated [paraphrasing] “investors are still in denial and that is the only reason the markets have not fallen further.”

    It was a pretty accomplished panel, including Wilbur Ross and others. Watch for yourself. Not one thought we were anywhere close to a bottom.

    If I have to PYMWYMI (put your money where your mouth is), then I am going on the record that we see sub-10,000 Dow by October.


  28. cinefoz commented on Mar 10


    If the AIG guy was so smart, he wouldn’t have gotten into the subprime mess in the first place. By inference, he is only guessing and has no facts you and I don’t have. He may have a few more details, but this is the internet age. Secrets are impossible to keep. These people are pandering to an audience just to be popular. Today, bad news is popular. They are peddling ‘what everybody knows’. The gullible use this as confirmation for their opinions.

    Gold is part asset, part fantasy. It is no longer the monetary standard it once was. Only the uninformed and superstitious think it has supernatural powers.

    A rising stock market is a symbol of the velocity of money. Why the velocity is rising or falling is what is important. Please explain why the velocity will fall soon.

  29. Darkness commented on Mar 10

    Our 3 year ARM is about to adjust too and drop for the second straight time. But that doesn’t mean I think teaser rate ARMs are a good idea in general. They allowed pushy brokers to convince trusting, busy and perhaps just lazy borrowers that the loan they were signing was affordable to them. Without better disclosure laws (preferably all terms in 30point font on cover of loan contract) the banks should be forced back into one kind of loan (fixed rate, must pay down principal) so that no one can ever claim they did not understand what they were signing. The banks had their chance to work without oversight and they blew it big time. Like errant children they need to be put back in a playpen where they can only hurt themselves while they throw a tantrum.

  30. Agoracom commented on Mar 10

    Why the velocity will fall soon? I prefer why the stock market will hit terminal velocity.

    We can get into theories, stats and charts but at times like this you need look no further than grandpa’s common sense:

    People have no money (cash)
    People have no homes (sub-prime)
    People have no home equity (s-p neighbors)
    Banks are running out of money
    Government is printing money
    Foreigners don’t want US money
    Fed is in checkmate (housing vs. inflation)

    The only way out is pain. Period.


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