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Is gold correlated with the US debt ceiling?

August 1, 2012, 12:00 PM Przemysław Radomski , CFA

You often discuss the correlation between the price of gold and a number of other factors. Here's an interesting thing to use for correlation: the US debt. Some charts imply we can project gold's price if we can estimate the future US debt and debt ceiling.

Actually, we commented on the gold-debt-ceiling link about a year ago, in the July 29th, 2011 Premium Update. Since nothing has really changed about this relationship, we will quote what we wrote back then:

For more details on the history of the debt ceiling in the U.S., please take a look at the chart below.

As you can see, gold has roughly followed the rise in the U.S. debt since 2000. You can also see that there were periods when gold traded without a visible correlation with the debt. In short, the above chart confirms that growing uncertainty linked to the growing debt pile might fuel the price of gold. However it also confirms that markets cannot follow a given economic indicator with reasonable precision at all times. This is what we've emphasized many times - that fundamental factors can only point you in the general direction a market is going. They do not provide details on timing.

In fact, while the debt didn't decrease, the price of gold did, which confirms this observation. This link doesn't provide details on timing, but remains a positive long-term factor for gold.

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