I have been showing the long-term graph of US dollar index vs gold for some time, arguing that the last twelve years have, on average, been deflationary.
Since early 2008, the gold price has risen from ~900USD per oz to nearly 1500 USD/oz, whereas the US dollar index has risen from about 72 to nearly 98. Richard Russell seems to have been right, with his bet of 50% gold and 50% US dollars.
Now, here's a thought. If the graph trending upward and to the right is deflation, how does inflation plot?
Down and to the right (rising gold, falling dollar). Deflation and inflation are not opposites . . . they are perpendicular.
In the above graph, even though the trend has been deflationary, there are inflationary and disinflationary intervals as well.
From about mid September last year until the end of August, we had pretty steady deflation. But on much shorter timescales, individual actions are on the inflation-disinflation axis. (I have not decided what to call the opposite of deflation - perhaps #$!?@!?).
My thesis of the past several years is that deflation is good for the price of gold companies. So let's see how one did.
Franco Nevada is a royalty streaming company with about 80% of its revenues coming from precious metals production. This company is a good one to test the hypothesis as it is more likely to be affected by economic factors such as the price of gold and less affected by company-specific factors as would be the case for a mid-tier producer.
From late September 2018 to about the end of August of this year, Franco Nevada embarked on a powerful price advance from about $80/share to $130/share--a 62% gain. This gain corresponded with the period of deflation, where both gold and the US dollar index were rising.
Similarly, a quick look at other companies including SSR Mining, Wheaton Precious Metals, Wesdome, Semafo, and even a small exploration company like Bravada showed strong gains over the same period.
Since early 2008, the gold price has risen from ~900USD per oz to nearly 1500 USD/oz, whereas the US dollar index has risen from about 72 to nearly 98. Richard Russell seems to have been right, with his bet of 50% gold and 50% US dollars.
Now, here's a thought. If the graph trending upward and to the right is deflation, how does inflation plot?
Down and to the right (rising gold, falling dollar). Deflation and inflation are not opposites . . . they are perpendicular.
In the above graph, even though the trend has been deflationary, there are inflationary and disinflationary intervals as well.
From about mid September last year until the end of August, we had pretty steady deflation. But on much shorter timescales, individual actions are on the inflation-disinflation axis. (I have not decided what to call the opposite of deflation - perhaps #$!?@!?).
My thesis of the past several years is that deflation is good for the price of gold companies. So let's see how one did.
Franco Nevada is a royalty streaming company with about 80% of its revenues coming from precious metals production. This company is a good one to test the hypothesis as it is more likely to be affected by economic factors such as the price of gold and less affected by company-specific factors as would be the case for a mid-tier producer.
From late September 2018 to about the end of August of this year, Franco Nevada embarked on a powerful price advance from about $80/share to $130/share--a 62% gain. This gain corresponded with the period of deflation, where both gold and the US dollar index were rising.
Similarly, a quick look at other companies including SSR Mining, Wheaton Precious Metals, Wesdome, Semafo, and even a small exploration company like Bravada showed strong gains over the same period.
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