Is Gold Really a Commodity?

Tuesday, August 24th, 2010

Is gold really a commodity?

You would expect gold, as a purported commodity, and inflation to move in tandem. The data, going back to 1978 and capturing an inflationary spike, shows a correlation of, at most, 0.08. That is low. Really low.

Gold’s price doesn’t move with inflation; it moves against the dollar:

Going back to 1973 — a period that defines the modern, non-gold-backed dollar — the greenback’s movements closely track gold’s direction. The correlation between month-end gold prices and the Major Currencies Dollar Index, as reported by the Federal Reserve, is –0.45. [...] Over the past 30 years, the correlation between the dollar and gold is –0.65 — a high negative correlation. It means the dollar and gold are effectively on opposite ends of a seesaw.

Gold isn’t a commodity; it’s a currency.

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