T Nation

Gold 1900+


Gold just shot through the 1900 barrier, investors are expecting QE3 any day now and with the Fed Press conference friday we will find out when it is happening.


They don't have to actually announce QE3 to do it. They can just do a quid-pro-quo with other central banks in secret. Gold goes higher either way, but treasuries can still go lower.


Don't even get me started on treasuries. Such a blatant market manipulation so much waisted capital there.


"The key is that gold is tied to real interest rates. Where I differ from them is that I use real short-term interest rates whereas they focused on long-term rates.

Hereâ??s how it works. Iâ??ve done some back-testing and found that the magic number is 2% (Iâ??m dumbing this down for ease of explanation). Whenever the dollarâ??s real short-term interest rate is below 2%, gold rallies. Whenever the real short-term rate is above 2%, the price of gold falls. Gold holds steady at the equilibrium rate of 2%. Itâ??s my contention that this was what the Gibson Paradox was all about since the price of gold was tied to the general price level.

Now hereâ??s the kicker: thereâ??s a lot of volatility in this relationship. According to my backtest, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (thatâ??s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate.