There’s no way I can answer this briefly and be as thorough as I would like to be as the complexity of gold prohibits it and no matter what I say it will be vastly incomplete. Unlike many economic variables, including the stock market itself, in which high r squared are certainly possible, gold’s unique feature of maintaining its value in both deflationary and inflationary times make finding a combination of variables leading to a high r squared very difficult. A major reason is investor psychology - and especially psychology related to anticipating economic crises. In general, I eschew technical analysis. For gold, and I believe gold alone, technical analysis seems to work better than a fundamentally based analysis, especially over the short-term. The reason, I believe, is because technical analysis is much more psychologically oriented than fundamental analysis. As a sidebar: the same is not true with the stock market. One reason is that lead times and psychological factors are better defined than those that exist with gold. In certain circumstances, you can get a high r squared for gold, especially those in which it's relatively easy to anticipate economic crises. But even in those circumstances the time frame in which r squared is high is going to be limited.
Thank you, I appreciate your thoughtful response. I have also found technical analysis to be a little bit more useful when applied to gold. At times, it has that funny characteristic of going up for the exact same reason that it went down, and that behavior, whether it makes sense or not, can at least be captured through TA.
Really appreciate your response and wanted to let you know that it was one of the most difficult questions I have faced, but ironically I realized a better answer when I looked at the article was that it is a composite variable - part physical part fiat with the percentages virtually impossible to determine - and I have probably been looking at this since before you were born but realized a way of describing gold's peculiarities just now. Even old dogs learn new tricks occasionally! Many thanks for helping me realize that gold is composite!
Very interesting perspective, especially the discussion about leverage and the possibility that physical settlement could increasingly shape how gold is priced.
Personally, I tend to think about gold less in terms of specific price targets and more as a long-term monetary reference point. Its supply grows slowly and predictably, while the supply of unbacked fiduciary media expands in response to political and economic pressures. Over extended periods, this relative supply dynamic alone can lead to a gradual appreciation of gold against fiat currencies.
At the same time, confidence plays a crucial role. As credit creation progresses, there may come a point when trust in prevailing monetary arrangements weakens, and markets suddenly reprice scarce monetary assets. These episodes are inherently difficult to forecast because confidence is not directly measurable. In that sense, sharp volatility or rapid upward moves in gold are not inconsistent with the longer structural trend.
This line of thinking goes back to early monetary economists such as Ludwig von Mises, who described the persistent tension policymakers face between monetary restraint and continued expansion. From an investor’s perspective, this is also why I tend to view gold less as a tactical trade and more as a form of long-term monetary insurance.
Curious how others here think about balancing relative money supply dynamics and confidence when forming a view on gold.
Interesting perspective! One additional point we could make is that history shows that economies do much better when gold is at the center, from the US to most any country that has ever been on a gold standard, you’ll find strong, non-inflationary growth. We don’t think this conflicts with the viewpoint of von Mises. And certainly what you said about long-term holding is consistent.
Thank you, I very much agree with your point. Ludwig von Mises was indeed a strong advocate of sound money, and he saw the gold standard primarily as an institutional framework that helps restrain discretionary monetary expansion and the credit-driven cycles that often follow.
Historically, periods in which gold or gold-based monetary systems played a central role were frequently associated with strong real growth combined with relatively stable long-term price dynamics. Two often-cited examples are the long monetary stability of the Byzantine Empire under the gold solidus and that of the second half of the nineteenth century under the classical gold standard. In both cases, population growth, capital accumulation, technological progress, and expanding trade took place without the persistent inflation that characterises modern fiat regimes.
When real output grows faster than the supply of monetary gold, the natural outcome is not economic stagnation but mild secular deflation. From an Austrian perspective, this is not a pathology but a reflection of genuine progress. Inflationary growth is often mistaken for real prosperity, while mild deflation under sound money may in fact signal that productivity gains are being passed through to society in the form of rising purchasing power.
In that sense, I tend to see gold less as a driver of growth itself and more as a stabilising monetary anchor. By limiting the scope for discretionary monetary expansion, a gold-based system allows real factors such as innovation, demographic change, and capital formation to play the dominant role in shaping long-term prosperity.
I totally agree with you - and I've actually used examples of countries in the late 19th century in other writings I've done! Happy to find a kindred spirit - many thanks for your thoughtful responses!
Wow that was a good read there i just learned a lot from that article that you posted your breakdown definitely taught me a few things and what you’re saying with China I’m sure that’s what their agenda is it Sounds about right wouldn’t surprise me at all. Thanks for the knowledge 📖 I appreciate it.
Very interesting piece, and very timely. Have you found any particular variable in your gold pricing models to have a high R-squared?
There’s no way I can answer this briefly and be as thorough as I would like to be as the complexity of gold prohibits it and no matter what I say it will be vastly incomplete. Unlike many economic variables, including the stock market itself, in which high r squared are certainly possible, gold’s unique feature of maintaining its value in both deflationary and inflationary times make finding a combination of variables leading to a high r squared very difficult. A major reason is investor psychology - and especially psychology related to anticipating economic crises. In general, I eschew technical analysis. For gold, and I believe gold alone, technical analysis seems to work better than a fundamentally based analysis, especially over the short-term. The reason, I believe, is because technical analysis is much more psychologically oriented than fundamental analysis. As a sidebar: the same is not true with the stock market. One reason is that lead times and psychological factors are better defined than those that exist with gold. In certain circumstances, you can get a high r squared for gold, especially those in which it's relatively easy to anticipate economic crises. But even in those circumstances the time frame in which r squared is high is going to be limited.
Thank you, I appreciate your thoughtful response. I have also found technical analysis to be a little bit more useful when applied to gold. At times, it has that funny characteristic of going up for the exact same reason that it went down, and that behavior, whether it makes sense or not, can at least be captured through TA.
Really appreciate your response and wanted to let you know that it was one of the most difficult questions I have faced, but ironically I realized a better answer when I looked at the article was that it is a composite variable - part physical part fiat with the percentages virtually impossible to determine - and I have probably been looking at this since before you were born but realized a way of describing gold's peculiarities just now. Even old dogs learn new tricks occasionally! Many thanks for helping me realize that gold is composite!
Very interesting perspective, especially the discussion about leverage and the possibility that physical settlement could increasingly shape how gold is priced.
Personally, I tend to think about gold less in terms of specific price targets and more as a long-term monetary reference point. Its supply grows slowly and predictably, while the supply of unbacked fiduciary media expands in response to political and economic pressures. Over extended periods, this relative supply dynamic alone can lead to a gradual appreciation of gold against fiat currencies.
At the same time, confidence plays a crucial role. As credit creation progresses, there may come a point when trust in prevailing monetary arrangements weakens, and markets suddenly reprice scarce monetary assets. These episodes are inherently difficult to forecast because confidence is not directly measurable. In that sense, sharp volatility or rapid upward moves in gold are not inconsistent with the longer structural trend.
This line of thinking goes back to early monetary economists such as Ludwig von Mises, who described the persistent tension policymakers face between monetary restraint and continued expansion. From an investor’s perspective, this is also why I tend to view gold less as a tactical trade and more as a form of long-term monetary insurance.
Curious how others here think about balancing relative money supply dynamics and confidence when forming a view on gold.
Interesting perspective! One additional point we could make is that history shows that economies do much better when gold is at the center, from the US to most any country that has ever been on a gold standard, you’ll find strong, non-inflationary growth. We don’t think this conflicts with the viewpoint of von Mises. And certainly what you said about long-term holding is consistent.
Thank you, I very much agree with your point. Ludwig von Mises was indeed a strong advocate of sound money, and he saw the gold standard primarily as an institutional framework that helps restrain discretionary monetary expansion and the credit-driven cycles that often follow.
Historically, periods in which gold or gold-based monetary systems played a central role were frequently associated with strong real growth combined with relatively stable long-term price dynamics. Two often-cited examples are the long monetary stability of the Byzantine Empire under the gold solidus and that of the second half of the nineteenth century under the classical gold standard. In both cases, population growth, capital accumulation, technological progress, and expanding trade took place without the persistent inflation that characterises modern fiat regimes.
When real output grows faster than the supply of monetary gold, the natural outcome is not economic stagnation but mild secular deflation. From an Austrian perspective, this is not a pathology but a reflection of genuine progress. Inflationary growth is often mistaken for real prosperity, while mild deflation under sound money may in fact signal that productivity gains are being passed through to society in the form of rising purchasing power.
In that sense, I tend to see gold less as a driver of growth itself and more as a stabilising monetary anchor. By limiting the scope for discretionary monetary expansion, a gold-based system allows real factors such as innovation, demographic change, and capital formation to play the dominant role in shaping long-term prosperity.
I totally agree with you - and I've actually used examples of countries in the late 19th century in other writings I've done! Happy to find a kindred spirit - many thanks for your thoughtful responses!
My pleasure. I am glad we share a similar way of thinking.
Wow that was a good read there i just learned a lot from that article that you posted your breakdown definitely taught me a few things and what you’re saying with China I’m sure that’s what their agenda is it Sounds about right wouldn’t surprise me at all. Thanks for the knowledge 📖 I appreciate it.