Meanings attached to price of gold?

While it never seems to be obvious or linear, I sometimes think there must be some significance to the price of gold, with respect to the world economy. When the most recent financial crisis hit in 2008, gold was selling for between 800 and 1000. Three years later it peaked at 1900. Since then it has generally fallen back down to the 1000+ range, but in the last two months it has risen pretty steadily to around 1250.

What I take this to mean is that, somewhere, a noticeable number of people are worried enough about their (local or national, probably) economy to buy gold instead of, and possibly by selling, stocks or bonds. I have heard some even scholarly predictions that we may be headed for another severe recession; I have also heard of support from biblical scripture for a depression-level loss of stock values this year (don’t ask me, some swami or other has made some scriptural connection to current events, apparently).

So far I have not tried to interpret fluctuations in the price of gold to mean anything, and I expect to continue that policy. If nothing else, it seems to be reactive rather than predictive. But it lingers at the back of my mind.

Does anyone share my interest in this?

Using the Dow-Jones stock average as a proxy for prosperity, here’s a graph that shows the DJIA/gold ratio over the past century. See that gold outperformed the DJIA during the early 1930’s and in 1937. By the late 1960’s gold was hugely undervalued – Nixon was soon forced to allow gold revaluation – but later there was a huge move from gold to stocks during the 1980’s and 1990’s. Gold was King throughout Bush-43 and early Obama administrations, but the stock/gold ratio increased during 2013-2015.

Shaded portions of the chart show recession. Use the chart how you will.

I think your link is bad septimus.

Oooops. Here is the intended link to a graph.

My notes about that graph:

  1. While the DJIA is not the best indicator of the economy, the wild swings in the graph far overwhelm the errors introduced by using it.

  2. It has a log scale!!! The swings are exaggerated at the bottom and unrepresented at the top. Hmmm.

In any case, my takeaway is the ratio is independent of current economic performance.

I believe that you will find that the increase in the last 2+ months can be explained best by the dollar falling somewhat against other currencies such as the Euro/Yen and the comeback from a low for oil rather than some strange increased demand worldwide for gold.

Gold is what people buy when they are pessimistic about the economy and are just looking for something to store value while things blow over. Stocks are what they buy when they are optimistic about the economy and are looking to build wealth be investing in companies that are “doing stuff”, with the expectation that that “stuff” will be profitable.

There have been many predictions of great-depression level losses of stock values in 2016. There have been similar predictions of great-depression level losses of stock values in the following years: 2015, 2014, 2013, 2012, 2011, 2010, 2009, … , 1932, 1931, and 1930.

“People”, as in regular folk, don’t trade in gold enough to have a significant impact on its price. It’s larger institutions, especially nations, that have by far the largest influence.

The most recent large decline was to nations (such as Germany) and large banks (esp. in China) selling off some of their gold reserves because the price was good and they no longer had a huge interest in maintaining large stacks of it.

:smack: :smack: I’m so used to being annoyed by not seeing a log scale when appropriate that I ignored this graph’s stupid use of the log scale.

Don’t blame me – blame Google Image Search. :stuck_out_tongue: