The Gold Graphs You Need To See

Earlier today Ronald Stoerferle sent his latest report to me. A selection of 50 graphs might not sound like a particularly exciting way to spend a morning but, as they say a picture says a thousand words and this was certainly the case in all 50.

The whole report is worth a look, but here I take some of favourites and explore them a bit more closely.

Currencies priced in sound money

It can be easy to forget that gold is in fact a currency, a faceless one. So when we comment on the price of gold we are merely expressing the exchange rate at that moment in time, against whatever currency we choose to price it in.

With this in mind it is interesting to look at currencies priced in gold, which is as we say just another currency.

You may be familiar with this graph in relation to the US Dollar or even the British Pound, but even currencies we once perceived to be stable have experienced a major fall in value next to gold – the Swiss Franc and the Canadian dollar. One way or another all currencies featured have embarked on easy fiat monetary policies.

Whilst currencies such as the pound and dollar may have regained somewhat against gold this year, the India Rupee has not showing that currency wars are still ongoing which means one thing – further devaluation and higher gold prices.

Purchasing power of your fiat money
The following graph is slightly more helpful however when it comes to understanding how much bullion you can get for your buck. Unsurprisingly the purchasing power of one unit of currency has increased in the last year or so. However it remains dramatically low compared to the past forty two years.

The end of the bull-market?

Is this bull market coming to an end? It doesn’t look like it judging by the next graph:

Gold performs well during deflation

We often hear about what a superb hedge against inflation gold is, but what about deflation? Politicians and central bankers are truly terrified of it seeping into the economy, but those in gold investment shouldn’t be so worried.

Interestingly silver is a mixed bag when it comes to deflation, which suggests that there are other phenomena affecting the price during each period.

Inflation and the gold price

Deflation aside, inflation is no doubt present (despite official statistics). As above, gold is widely considered to be a hedge against inflation. However, research carried out by Professor Jastram found that gold was not, in fact, an ideal hedge against such an event. The World Gold Council did later republish and update Jastram’s research and concluded that perhaps the nature of gold and inflation’s relationship had changed in recent times, so that gold was no more of a hedge against inflation that had previously been found by Professor Jastram.

But, is it about the rate of inflation or the change in the inflation rate?

With this in mind we come to the final graph we wanted to share with you, gold’s reaction to a change in inflation rates:

What can we learn from gold graphs?

Often analysts use technical charts and analysis to predict gold price movement and the health of the market. However, the above graphs are, in my opinion, a far more accessible way to help understand gold and its reaction to events. These graphs take in the fundamentals that underline the price of gold bullion.

Their long term perspective also helps us to see that not only do sovereign currencies have a long way to go before they can regain any hint of value, but it also shows us that the impact of various factors such as interest rates changes throughout time.

What can we take from these graphs? There is no single driver of the gold price ‘nor is there one factor which has the biggest impact.