Gold is Not a Function of the US Dollar Nor is Gold an Inflation Hedge


Swings in the US dollar have no long-term impact in the price of gold. Nor is gold an inflation hedge.

Three Points

  • December 2004: US Dollar Index 108, Gold $435
  • April 2009: US Dollar Index 108, Gold $883
  • November 2014: US Dollar Index 108, Gold $1182

Gold vs Trade-Weighted Dollar Index 1973-Present

While gold generally moves opposite the dollar in day-to-day fluctuations, long term impacts are nonexistent.

Here is the chart with the index of gold and the dollar set to the same base year, 1997.

Gold vs Trade-Weighted Dollar Index

Gold vs the CPI

Gold fell from $850 to $250 from 1980 to 2000 with inflation every step of the way.

What happened?

People had faith in the great "Maestro", Alan Greenspan.

But, But, But

But Mish, inflation is understated.

Indeed it is. Central banks are clueless regarding how to measure inflation. Bubbles are a direct consequence of inflation.

Note the implication: Because inflation is higher than reported, gold is even less of an inflation hedge!

One Exception

There is one exception to the rule gold is not an inflation hedge.

The exception is extremely high rates of inflation, especially hyperinflation.

In case of hyperinflation, nearly any storable physical asset is a hedge: cheese, cigarettes, gasoline, etc.

There is nothing unique about gold as an inflation hedge in case of hyperinflation.

Three Things Gold Isn't

  1. A function of the US dollar in any meaningful way
  2. A measure of inflation
  3. A good hedge against inflation, except extreme inflation and hyperinflation where any storable asset is a hedge.

So What Is It?

Measure of Faith in Central Banks

In addition to being money for thousands of years, the price of gold is primarily a measure of faith in central banks.

If you believe central banks have everything under control, don't buy gold.

But Why Have Faith?

  1. "Zero Has No Meaning" Says Greenspan: I Disagree, So Does Gold
  2. 30-Year Long Bond Yield Crashes Through 2% Mark to Record Low 1.98%
  3. More Currency Wars: Swiss Central Bank Poised to Cut Interest Rate to -1.0%
  4. Inverted Negative Yields in Germany and Negative Rate Mortgages.
  5. Fed Trapped in a Rate-Cutting Box: It's the Debt Stupid

If you believe monetary madness, negative interest rates, and negative rate mortgages prove central banks do not have things under control, then you know what to do.

Buy Gold.

Mike "Mish" Shedlock

Comments (37)
No. 1-21

It’s true there’s no apparent correlation but that is by design of manipulative central bankers controlling the narrative. In the event the Fed loses this power of manipulation the curtain comes down and we see who’s pulling the levers.


In today's hyper-leveraged financial system where re-hypothecation (pledging the same security as collateral to multiple lenders) is a fact of life, Gold is insurance against counter-party failure and fraud. Gold is money. All else is credit. Same as it ever was.


Hi Mish.

I have been going back through your blog history to try and piece together the alternative options that you have suggested on how to buy gold. I am hoping you could put on your long list of upcoming topics a summary of gold purchase options that you feel are worthwhile exploring?


Ted R
Ted R

The Fed is trying to prevent wholesale deflation and his been for over twenty years. What exactly would you like the Fed to do? I'm all ears.



I wrote such a post but a search does not show up

GoldMoney Bullion Vault BitGold Ounz

All of those are physical - so is buying coins and bullion - Each has advantages and disadvantages

I use option 1 for gold and silver - but also Miners - a play on gold and silver - It is best for large purchases you do not want to store yourself.

OUNZ is tradable physical gold. A good way.

BitGold is a way to easily buy gold in tiny increments

I have a relationship with GoldMoney it is of benefit to both of us if you go that route - email me if interested

I do not recommend coins, too much of a markup: Main question is do you require physical possession. I don't want it, others insist on it


I think of gold as primarily a long-term store of economic value. This is its money-function that we can use even when it is illegal to use gold as money for general market transactions. Currencies and governments rise and fall, but humans keep valuing gold across the centuries. That won't change until someone discovers a cheap way to make the stuff.

Another thing gold is not: an investment that earns a yield. (With one exception: Keith Weiner has apparently created some gold-yielding vehicles, see

It makes sense that, shorter-term, gold is a hedge against falling faith in central banks. But I can't figure out an exit (back to dollars) strategy for that.


"the price of gold is primarily a measure of faith in central banks."

I wish you would add, "the price of gold is primarily a measure of faith in central banks and fiat currency. "


I have heard some people say that gold didn't do well in 1980-2001 timeframe because even though there was inflation, it was a DISINFLATIONARY period i.e. in which the inflation rate was falling gradually all the time.

Only when inflation is persistently high and there is (a) no hope that it will ever come down or (b) the fear that the rate of inflation will go even higher, will gold do well.


I have read in the past, from a reliable source unremembered, that Brown's Bottom was done by Brown to bail out a certain Central bank which had heavily shorted gold, and was facing large payout to cover it's short position. Anyone offer an opinion here?


"Gold is not a function of the US Dollar"

Mish, That's not quite true. At least since 2007, there's been pretty good correlation between gold and the JPY/USD spread. Technician John Murphy pointed this out several years ago, and still seems to be working. Plotting on a chart together you will see the general direction tracks pretty well. Both markets topped out in 2011 and bottomed in 2015 only a few months apart.

The fundamental reason for this relationship is a mystery to me.


This blog is becoming nothing more than a bunch of left wingers whining about Trump and prepping for "doomsday" that the same losers think is caused by Trump (and not by the out of control spending that is BOTH parties, and by interpolation, "we the people").

Trump isn't the problem, all the people demanding free sh!t are the problem.

Gold, in any form, won't save you from your neighbors or from yourself. You will learn to spend within your means, or else you will suffer. You will tell your neighbors to grow up and make smart choices that live within their means, or else you will suffer.


Mish, you used Fred for every example... should we really believe them anymore? Actually, that tidbit makes for even more incentive for transferring fiat into gold/silver.


I believe the price of gold is a function of what a lot of rich people think goldbugs are thinking. Example: rich guy sees a high degree of volatility coming down the pike and buys a lot of gold. Price goes up. Rich guy touts on the Internet that the end is nigh, the price is going up and you poor folks better jump in before it's too late. Poor guys buy up all the gold they can find. Price goes up even faster. Rich guy sells his gold to the poor guys for a massive profit and buys cocaine and hookers.


....ain t it just pathetic and sad that the Sapiens Ape, after a mind boggling evolution, has to rely once again on a anachronistic relic called gold ? We ARE really deluded, are we not, seeking value in gold and in imaginary stuff like 0% interest fiat currencies, not to mention the mother of all delusions named bitcoin ? Like I said, PATHETIC, in the meantime, all we have achieved is the total and irreversible destruction of the planet ! YES I know we ve been living very well for a while, 50 years though is merely a almost invisible blip on the time scale, and do believe me, I don t want to be part of what s coming next, of that I am sure !


Maybe try comparing the USD price of gold to quantity of money, maybe not base, but M3 or USD denominated debt?


Mish, is this another joke, because the Greenland thing was funny, this is just cruel to all the goldbugs that will tell you that Gold is the perfect currency a solution to all the ills the world. It's a massive error to screw with the goldbugs -- others have tried Kiddynamite) and they never win!

Gold is good, gold is perfect it does everything, apparently if you rub it against your privates....nevermind, you got the picture

P.S. You are correct, that gold is no hedge against USD inflation -- since the asset price inflation of the past decade has not, at all been reflected in the price of gold


Do you employ trading options in your investment strategies?


Great article Mish. Love the analysis and more importantly trolling the Goldbugs, which is the most fun thing to do outside of trolling BitcoinBugs.

However... I would say the single most thing to clarify gold IS NOT... is an investment. GOLD IS NOT AN INVESTMENT. Gold is savings. It is a great form of mid to long term savings than paper currency.

Gold can also be a speculation... and you are laying out a case of how to speculate in gold. Other than your references to the miners - which are investments.

In 1919 you could have put $20 into a $20 currency bill, an ounce of gold, or a quantity of Coca-Cola. The $20 bill can now buy an average meal. The gold can now buy at least a good mens suit... probably two in fact (I am guessing a suit has deflated on a real basis from technology, and does not imply overvaluation of gold). The Coca Cola stock is worth multiple millions or something not even roughly in the same world.

The currency bill was a poor form of savings. The gold was an excellent form of savings. The Coca Cola stock was a successful investment (there were better ones though I am sure).

Clearly gold was effected by inflation over 100 years to produce that outcome. As a mid term speculation strategy (your topic) I agree... inflation is not the primary driver.

People should have four forms of savings: Physical precious metals, physical currencies, highest quality short term treasuries, bank deposits. Unfortunately the last form (bank deposits) are the most common and the worst form.

Once they have that, they can invest, or less desirably - to speculate.



Interesting perspective.....Gold isn't an inflation hedge, then what is it?

It's real money.

Its a commodity. Its a vehicle of value. Its a store of wealth.

One thing you failed to include in your analysis is that GOLD from 1933 up until 1974 was illegal to own by US citizens. As a US citizen, you were forbidden to own Gold, Gold Bullion, and Gold coins.

You could only own gold as jewelry which was heavily inflated.

But as a hedge against FIAT currency, the value and purchasing of power of Gold from $35.00/oz in 1971 to $1513 ,as of today, makes for a return of 420% over 48 years or roughly a 9.5% return in investment each year.

But lets look at Gold Purchase power.

The year 1924, a newly minted $20.00 gold coin and a paper $20.00 minted from the US FED. In 1924, they would each buy the same amount of goods and services...two suits, a couple shirts, belt, shoes, tie, and still have enough change for a nice dinner. Fast forward to 2019. Take the same Gold Coin and the Paper Money and look what it will buy. The value stored in the Gold Coin will buy more than it did in 1924 but the paper money bearly covers a meal from McDonalds.

The US dollar, since 1971, has lost over 95% of its purchasing power. So, I guess the real question is not so much is Gold an inflation hedge but it "real money" where the other is just paper.

Answer: Gold (and Silver) are real money holding their value to purchase goods and services throughout the last 5000 years of human history. FIAT like all the other FIATs of times past will revert to their intrinsic real value and purchasing power.............ZERO


In general, another puzzling gold article by Mish. Gold price is a function of gold sentiment. Gold price sentiment is hardly a function of CB investor fever. That kind of fundamental analysis has no measurable facet. No need to reach for a reason on Gold price movement. Just follow the price with a non secular correlation in mind. If you cannot correlate to the dollar, which Mish / Long term chart is correct, you cannot, why try to correlate to something more arcane as confidence in CB?


"The exception is extremely high rates of inflation, especially hyperinflation."

Translation: Gold isn't a hedge against inflation except when it is.

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