T Nation

Gold 1900+


#1

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.


#2

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.


#3

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


#4

"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.

http://www.crossingwallstreet.com/archives/2010/10/a-model-to-explain-the-price-of-gold.html