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What The Price Of Gold Says About The Economy

September 13, 2007 by Scott Kinne

Headlines today read that the value of gold is nearing its all-time high (adjusted for inflation). The lay people would ignore this story, but those in the know understand that the price of gold is usually reflective of the state of the global economy.

The spot price of gold tells a lot about investor psyche and it is up nearly 10 percent from its 30-day low.

As a “safe haven” investment, gold’s value tends to increase when an economic recession is expected. That’s because gold tends to hold its value during a recession; its value is tied to the global economy and not that of any one country.

In the chart above from Kitco, the path of gold’s price appears to mirror the path of market expectations for the Fed’s meeting next week. As the likelihood of a Fed Funds Rate cut increases, so does gold’s relative value in U.S. dollars.

As gold reaches new highs, it’s predicting somewhat of an economic recession.

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Scott Kinne

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