Friday, April 4, 2014

The Cultural Upheaval of Loose Money

I hope you find the mechanism and history of money as intriguing and interesting as I do. The below video of a lecture given by Jeffrey Tucker, as shown by the Mises Institute, has some years, but provides some great insights pertaining to money.

Wednesday, April 2, 2014

Own Gold, Don't Worry About Interest Rates

If you have been paying attention to the news, much like myself, you have no doubt heard the talking heads claiming that gold prices will fall, implode, end up priced in hamburgers, or whatever negative metric you can think of once the economy rebounds, interest rates rise, and real yields trickle up. This would be a great narrative.... if it was true. But, the data just does bear any of the talking heads out. Not only is there no relationship between gold prices and economy, but there is no relationship between gold prices and interest rates, at least in the historical data.

First, we have this recent commentary from Kitco news seen the other day.

Interesting yes, but why just take someone's word for it. Let us turn to the data.

Gold vs. 10 year interest rates

I am no math genius but I don't any long-term relationship here. How about the year-over-year change in gold prices and interest rates.

Year-over-year changes in gold and 10-year treasury rates

Again, I dare you to make the relationship here. Of course you may be asking, what about the numbers? Looking at the absolute daily pricing of gold and interest rates, the correlation between the two is a negative 47% and the R-squared is a whopping 22.5%. Essentially showing little to no relationship between the two. More so, the year-over-year correlation and r-squared are essentially zero. Essentially zero even for using interest changes to predict future changes in gold.

Real yields (defined as 10 year treasury yields minus annual CPI) does not fair any better.

Gold vs. real yields

Year-over-year gold vs. real yields

I am hard pressed to see any relationship here either. In fact, the numbers again bear this. The correlative factors show little to no relationship on either a coincidental or forward bases while the r-squared figures are strongest on the year-over-year, coincidental view, with an astoundingly strong (sarcasm noted) 16.5%.

The moral of the story, if you own gold or other precious metal related investments, you can disregard interest rates.