Gold price could be 40% higher before Dec-2014, in dollar terms ! - as per leading market follower

IMP-OST : 22nd Oct, 2012    ( Post 4 of 6 )

www.i-securesolutions.in : Following projections - Gold price.


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How often does it get cloudy on a particular day and then it starts raining? 50% of the time may be, isn't it? How about rains coming down every time there are clouds on the horizon? That would certainly be a 100% hit rate.


Well, in statistical parlance the two events have a correlation coefficient of 0.5 and 1 respectively. In other words, a correlation coefficient is nothing but a measure of how well the change in one value follows the change in another.

If one value goes up every time another goes up, the correlation coefficient is said to be a perfect 1. If it happens say only 40% of the time, then coefficient is only 0.4.

Now, what constitutes a good score really depends from situation to situation. In a natural science experiment involving very precise instruments, a score of 0.9 may not be very good actually. But in a field such as economics, where there are multiple factors involved and also human emotions, even a 0.5 correlation coefficient can be considered very healthy.

Using this background, what if we tell you that there is a very important asset class out there whose price has shown a very high correlation with a certain macroeconomic indicator. In fact, the correlation coefficient in this case turns out to be an eye popping 0.94!

Now, this is a trend that is certainly worth studying isn't it? This is exactly what guys at Casey research did and they came up with some very interesting conclusion. The asset under consideration is none other than the yellow metal gold and the same has shown an amazing consistency with the expansion of US monetary base.

As highlighted, since 2008 financial crisis erupted, gold prices have moved almost in sync with the change in US monetary base.

And thus if this trend is extrapolated, there is a very strong possibility that gold would be still 40% higher in US$ terms by the end of 2014.

Of course, for the gold to reach this price, the US monetary base will also have to expand. Well, there would be very few who could doubt that given how the US Fed is doing one QE after another. And wait, we've not even considered other central banks around the world that are also engaged in printing money.