Monday, August 01, 2011

Gold and its correlation to debt and GDP - updated

Jesse offers a chart showing an apparently close relationship with the price of gold and the growth of US official debt, thus:

He wonders how this might look in relation to debt/GDP, and I give below gold's correlation with GDP and with debt in its broadest sense (TCMDO, ignoring intragovernmental lending) in the period 1952 - 2010:

I would suggest that gold's basic correlation is with GDP, but with wild swings reflecting debt-fuelled manias and financial crises. On this showing, and despite what looks like a meteoric rise over the last few years, gold is merely coming home and is not yet overpriced in the long view. This, as I understand him, is what Dr Marc Faber also thinks.

Not having had the money at the right time, I missed the opportunity to climb aboard gold when it was severely underpriced; but may do so soon, merely to preserve some of the value of our savings.

I'm not so much a gold bug as a most-everything-else bear. When the system stops lending cheap money to the riverboat gamblers with dusty top cards on Wall Street, I'll be interested in genuine investment.


Here's the price of gold compared to the growth in Total Public Debt Outstanding since fiscal year 1929 - this includes intragovernmental debt (please click to enlarge):

INVESTMENT DISCLOSURE: None - YET. Still in cash (and some inflation-linked government savings certificates), and missing all those day-trading opportunities.

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