Gold turns south as we head into Fed Week
Economic pessimism and the outlook for real rates, not inflation, drive the price of gold

(USAGOLD – 9/19/2022) – Gold and the rest of the markets turned south this morning as we head into Fed week with a rate decision and press conference scheduled for Wednesday. It is down $10 at $1667. Silver is down 22¢ at $19.46. We hear a great deal these days about inflation as the chief influence on the price of gold, but a study recently published by the JP Morgan Center for Commodities at the University of Colorado finds that since 2001 it has taken a back seat to two other important concerns.

“Gold is regarded as protective against bad economic times,” reads the study. “…In the early part of the sample [i.e., 1971-2000], variation in inflation or inflationary expectations was the single most important consideration for the real price of gold. From 2001 on, however, long-term real interest rates and pessimism about future economic activity appear as the dominant factors. While disinflation since 2001 might have been expected to result in low gold prices, any effect of low inflation was more than compensated for by unprecedentedly low long-term real interest rates and by pessimism about future economic activity.”

Editor’s note: In this context, the log chart posted below might be one of the more relevant included in these reports over the past several months. The University of Michigan Consumer Sentiment Index is now at its lowest level since 1971, as shown in the chart below (and, in fact, at a record low), a development that market analysts have largely overlooked.

University of Michigan Consumer Sentiment Index and the price of gold
(log scale, 1971 to present)
overlay line chart showing the University of Michigan Consumer Sentiment Index and the price of goldsince 1971
Chart courtesy of TradingView.com

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