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Prior to the last several years, modeling the gold market was relatively straightforward. But a lot has changed in recent history, and so has the mix of factors that are front and center in gold’s price trend.
In
What's Driving Gold? Central Banks And Hedging Are Key Factors
Summary
- In past decades, a simple two-factor model was relatively robust for estimating gold’s “fair value”: the US dollar and real interest rates.
- For several decades, this relationship was relatively robust. But recent history has upended this relationship.
- What’s driving gold these days? Two factors deserve to be on the short list of likely candidates: central bank purchases of the metal, and hedging strategies designed to offset blowback in a dangerous world.
James Picerno is the director of analytics at The Milwaukee Co., a wealth manager that is the adviser to The Brinsmere Funds, a pair of global asset allocation ETFs. He also edits CapitalSpectator.com and The US Business Cycle Research Report (CapitalSpectator.com/premium-research). He is the author of three books, including "Quantitative Investment Portfolio Analytics In R: An Introduction To R For Modeling Portfolio Risk and Return." Previously he was a financial journalist at Bloomberg and before that at Dow Jones.