The price of gold tracked the level of U.S. debt from 2000-2013. In 2013 as U.S. debt continued to increase, the price of gold dropped.
U.S. Debt and the Price of Gold
There is a strong correlation between U.S. debt levels and the price of gold.
One of the reasons to own gold is to counter balance the imprudent stewardship of a country’s monetary and fiscal policies. An increase in a country’s debt without a corresponding increase in production and ability to pay that debt will cause a rise in the price of gold.
Nick Laird, of Sharelynx – The Gold Standard in Precious Metals Charts – forwarded this chart showing the correlation of U.S. debt vs. the price of gold, with the commentary: “One could presume that gold should be at $1800 per ounce looking at this chart.” :
The price of gold has followed lock step the amount of U.S. Debt – until recently
The sharp divergence between the price of gold and US debt levels coincides with the massive naked short selling of gold that began in 2013.
Political Risk and the Price of Gold
Another reason to own gold is to protect wealth from political risk that may impact the value of a country’s currency. Often, imprudent fiscal and monetary policies are connected with and or/lead to political risk.
Political risk can also be present irrespective of a country’s monetary and fiscal policies.
Here are three charts from Sharelynx showing the price of gold vs. the value of three troubled currencies, the Ukraine Hryvnia (fiscal imprudence/political risk/war), the Argentine Peso (fiscal imprudence) and the Syrian Pound (political risk/war):
Gold Price vs. the Ukraine Hryvnia
Gold Price vs. the Argentine Peso
Gold Price vs. The Syrian Pound