Special: China Wants the Correlations too
Institutional insights
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Ultimately, If Gold correlates to both the USD and US Rates which in turn correlate to US economic power; What does Gold’s price ignoring those correlations say about US economic power?
They Want the (Gold) Correlations
Contents:
Gold and Dollar Correlations
China Correlations Matter
Correlations are Governors
What Governs How Much They Want The Gold?
Goldman’s Trading Desk Today
Correlations and Unipolarity/Multipolarity
More Charts
1- Gold and Dollar Correlations
Gold is still correlated to the USD
Gold is still priced as an opportunity cost to real US Bond yields.
These correlations still exist. They are simple mathematical facts.
Specifically:
Gold is Still Priced in Dollars
Gold is still priced in USD, therefore the higher the buying power of the USD (the less dollars are available) , the lower the price of Gold. That’s just a supply/demand fact.
Yet gold remains buoyant in the face of a strong USD. Why?
Owning Gold Has Real Rate Opportunity Cost
Similarly, the higher real rates are, the bigger the opportunity cost it is to own Gold. That is also a fact related to PV and FV of money.
How much in interest are you willing to give up now for the possibility to make money on Gold in the future?
If these correlations still exist, where did they go?
From Our Post: Gold, The Everything Hedge Revisited
Gold hasn’t decoupled from yields and the dollar, but the beta has decreased. While a gap has opened up, this does not mean the relationship has broken down.
The negative correlation of both pairs has become more negative than the historical average
So; why is Gold higher if these relationships are not broken? The simple answer is, China wants the gold. But it’s more than that. They are driving correlations now as well.
In the Founders group we all know why “they want the gold”. Restated for new readers here: Need for a trustworthy Store of Value for trade with no counterparty risk to replace US Bonds. That is why they want the gold.
Back to the correlation problem: