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