• 678 days Will The ECB Continue To Hike Rates?
  • 678 days Forbes: Aramco Remains Largest Company In The Middle East
  • 680 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,080 days Could Crypto Overtake Traditional Investment?
  • 1,085 days Americans Still Quitting Jobs At Record Pace
  • 1,087 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,090 days Is The Dollar Too Strong?
  • 1,090 days Big Tech Disappoints Investors on Earnings Calls
  • 1,091 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,093 days China Is Quietly Trying To Distance Itself From Russia
  • 1,093 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,097 days Crypto Investors Won Big In 2021
  • 1,097 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,098 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,100 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,101 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,104 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,105 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,105 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,107 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Debunking the Gold Bears Main Argument

Gold bears tirelessly repeat that deflationary periods are characterized by heightened demand for cash. For the United States, this means a strong US dollar.

Since the USD and gold are inversely correlated, the bears conclude that the gold bull market is over given that we have entered into a severe deflationary period.

This may seem like a strong argument but it does not withstand a more detailed analysis.

Although the inverse relationship between the US dollar and gold is true most of the time, there have been extended periods when both gold and USD appreciated in value. We only have to go back a few years to see a positive relationship between the two. Believe it or not, even in 2008, gold gained 5.8%, while the US Dollar Index gained 7.5%.

Today, most analysts who are bearish on gold believe that the US economy has entered into a deflationary recession similar to the Japanese lost decade of the 1990s. However, during the second half of the 1990s, when Japan was in the midst of a severe deflation, the Japanese yen fell dramatically by almost 50% as seen in the chart below.

Currency exchange rates during the period of competitive devaluation cannot have a meaningful effect on the behavior of gold. Excess supply of world fiat currencies will only move gold higher regardless of some currencies' fluctuations in relation to other currencies.

 

Back to homepage

Leave a comment

Leave a comment