Facts and Fantasies About Gold

Posted: 7 Jan 2014 Last revised: 23 May 2019

Date Written: January 5, 2014

Abstract

Many explanations have been given for the decline of the price of gold in 2013. Many more explanations about movements in the price of gold have been given over the last couple of years. In this report we check the most common of these explanations for their empirical validity. It turns out that most of these explanations (particularly those frequently heard in the media) are not based on facts but belong in the realm of fiction. And with fiction we do not even mean science fiction because any kind of scientific inquiry into these explanations would disguise them as false. It turns out that the price of gold is essentially influenced by inflation expectations and to a lesser degree real interest rates and the marginal costs of production. But even these factors are hard or nigh impossible to predict so that investors have to come up with scenarios about the future development of these factors. In our view at least throughout 2014 inflation expectations and real interest rates should continue to be dominated by central bank actions in the United States and other countries. Thus, in the short-term – but not necessarily in the long-term – these institutions will decide about the fate of gold.

Keywords: Gold, inflation, US dollar, forecasts

JEL Classification: G12

Suggested Citation

Klement, Joachim, Facts and Fantasies About Gold (January 5, 2014). Available at SSRN: https://ssrn.com/abstract=2375597 or http://dx.doi.org/10.2139/ssrn.2375597

Joachim Klement (Contact Author)

Liberum Capital ( email )

25 Ropemaker Street
London, EC2Y 9LY
United Kingdom

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