Dollar, Gold and Oil - Historical Chart: Compares the movement in the real dollar index with gold and oil prices since 1974.  The oil and gold series are adjusted for CPI inflation and the real dollar index is adjusted for the relevant trading partners own currency inflation rates.



Safe Haven and Gold Standard Hype :

Pundits are again making the spurious case for gold as a  safe haven even though gold has not been a safe haven since the Bretton Woods Gold Standard was consigned to history in the 1970s –  and  subsequent  gold price volatility has completely negated the safe haven myth.

Inflation Driven Gold Price Expectations:

The interactive chart above reveals cause and effect relationships affecting gold prices including the greatest peacetime inflation in history that followed after OPEC boosted the oil price from $3 in 1973 to $12 in 1974.

The Goldwatcher (pages 78 and 79) adresses the gold price spike that followed and quotes Nobel Laureate economist Robert Mundell:

‘The world thus moved onto a pure dollar standard without  a reciprocal obligation for gold convertability  ……….what followed was in reality a global fiat money establishment with economic growth funded by credit expansion. The great inflation of the 1970’s was a consequence of the rapid expansion of credit….inflation was worldwide and became a major problem in the US. Over twenty years from 1952 to 1971 US wholesale prices rose by less that 30%. In the eleven years from 1971 they rose by 157%. In Italy and the UK prices more than tripled.’

 Gold in a deflationary environment:

By contrast we are now in a deflationary environment. The oil price has already fallen by some 50% over the last few weeks.

Might  weakness in the oil price lead to more weakness in the gold price? A case can be made why it might  and, were it not for current global macroeconomic threats, it would.

The LBMA Annual Price Forecast Competition for 2015:

The  annual compendium of 2015 LBMA precious metals price forecasts in 2015  will be published within a few weeks.   From forecasts already published and on current indications forecast prices for gold will probably be in a range between a low of $1000 and a high of $1300. Analysts with a very bearish outlook may forecast a low price below $1000. Those with a very bullish outlook may forecast a high in the range of $1400 and, with dramatic and  seismic changes in global economic and geo-political conditions current expectations could change

All serious analysts will  base their forecasts on expected cause and effect relationships and, as has been the case over many years, the LBMA forecasts should be useful in defining reasonable expectations for gold prices.