Monday , 20 May 2024

Startling Relationship Between Gold Price & U.S. Gov’t Debt Suggests What Price for Gold in 2017? (+7K Views)

Boughton goes on to say in further edited excerpts:

Here is the scatterplot with the relationship: (The most recent datapoint, 9/30/12, is the one farthest to the right on the chart.)

(click to enlarge)

To see this a little better, I multiplied the gold price by 7 so the scale would be about the same, and charted both together over time. See below:

(click to enlarge)

[While]…it would seem like a no-brainer investment thesis to buy gold at today’s price as a proxy for the not-otherwise-investable thesis that US total government debt will increase in the future, one must consider the possibility, however, that the gold price has already anticipated the future increase in US government debt. To test this, I looked at the historical ratio between US government debt ($blns) and the gold price ($/oz)…. The chart of this relationship is below:

(click to enlarge)

The current multiple of 6.37 is at a record distance (1.5 standard deviations) below the trendline ratio of 11.48.


If the relationship [between US debt and the price of gold] returns to trend, then the gold price will “underperform” the change in US government debt from here forward. For example, if total debt goes to $17 trillion (from today’s $11.3 trillion) over the next 5 years, and the ratio goes to 12.57 (continuing on the same trendline), then the gold price would go back down to $1352 by the end of that 5-year period [2017].

[Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]


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One comment

  1. Good Article!
    Since not many believe that Gov’t. debt will be reduced in any meaningful way, unless there is a sudden ADJUSTMENT GLOBALLY, it would then follow that PM (including Gold) will also keep increasing in value. The trick is not to be impatient or start second guessing yourself.

    As they used too say in the 60’s, relax and be happy, (that you have something to invest)!