Debt ceiling hikes and gold prices ( repost )

Note:

There's another fight that the GOP says that they want to fight which is the debt limit fight.  They surrendered in that fight too.  Always best to go back to your best moments. /sarc

I put this up because the price of gold has fallen in the last two years even though the debt has increased.  Something fishy about that.  Now, try to imagine, when you view this chart, how the debt went up by two trillion, but the price of gold went down to the current price near $1300.  Does that make sense?  Totally disconnected....

On with the post


Something happened in the nineties, can you see it?

Back in that time, the gold price was below the debt limit line as plotted above.  It looks like some time in 1997 that the line crossed under the debt limit line has been there since.  It looks as if the price of gold has been increasing along with the debt, as if in a cause and effect.

By the way, the gold price doesn't seem to get out of control until 2006.  Gold was said to be in a bull market prior to that, but it really doesn't look that way here until 2006.  That would mean the bull market is only about 5 years old.

I think monetary policy has had a lot to do with the gold price lately.  Since 2008, it has been ultra easy money.  Monetary policy was starting to get tight at the 2006 time frame, as I recall.  Fed funds were actually going into an inverted yield curve from 2006 to 2007.  That only changed with the subsequent meltdown in the financial sector in 2008, which caused the Fed to aggressively combat the rapidly deteriorating situation.

The Fed ran out of room on interest rates, then switched to quantitative easing.  That was gold bullish, without a doubt.

This was intended to show that the debt was driving gold prices, however, it may be more of a function of monetary policies, as Milton Friedman always said.  The 2006 spike was probably related to the previous easy monetary policy, but didn't last.  The financial meltdown is what has been driving the gold price since. The Fed has been aggressive in fighting the effects of the economic slowdown.  The results are the higher gold prices.

Update ( repost )

I found the tail end of that graph that shows what it looked like over the last couple years.  Evidently, gold is a bit undervalued at present.  Not as much as I thought, though.

Looks like the budget fights have done some good.