Nonsense from the WSJ on Gold vs the Dollar


Mainstream media is continually wrong about the relationship between gold and the dollar.

Another example came up today in the as the Wall Street Journal discusses the "traditional relationship" between gold and the dollar in Gold Prices Hit Record as Dollar Drops.

The number of errors in the article is staggering.

  1. “You’re seeing money slipping out of the stock market or out of other assets and just eking into gold,” said David Govett, head of precious metals at commodities brokerage Marex Spectron.
  2. "Gold’s traditional inverse relationship with the dollar had frayed this year, as both assets benefited from haven buying during the pandemic," said WSJ author Joe Wallace.
  3. "So far, a burst of buying by investors has more than offset the dearth of jewelry demand."

Myth 1: Money Slipping Away

Money does not "slip away". It is impossible for money to flow out of stocks into gold or bonds or from bonds to stocks or any other combination.

An individual can choose to dump stocks for gold but in aggregate, for every buyer there is a seller so there is no net flow. Rather there are repricing events. 

Here's another example. A "For Sale" sign on one house in a neighborhood can impact the price of every home, even before a sale is made. There is no flow, but the houses were all repriced.

Myth 2: Inverse Relationship

Gold does not have a traditional inverse relationship with the dollar. This subject came up today in a pair of Tweets.

Myth 3: Jewelry Demand is Important

That comment shows huge ignorance about the true demand for gold as well as the price driver for gold.

Gold vs US Dollar Index 2019-12-16

Gold vs the US Dollar Index 2019-12-16A

Gold's vs the US Dollar: Correlation Is Not What Most Think

I posted the above chart on December 23, 2019 in Gold's vs the US Dollar: Correlation Is Not What Most Think.

This was one of my comments at the time

"With the US dollar right where it is now, gold has been at $450, $380, $1080, and $1480."

Gold vs US Dollar Index July 27, 2020

The lead chart reflects the price of gold vs the US dollar index on July 27.

The horizontal dashed line is the US dollar index at 93.7, When the solid blue line touches the dashed blue line the dollar index at that time is 93.7.

Price of Gold vs Dollar Index at 93.7

  • July 27, 2020: $1931
  • Mid 2016: $750
  • Mid 2003: $370

Repeat after me: The US dollar has little to do with the price of gold.

What About Jewelry?

According to the World Gold Council, demand for Gold jewelry in 2019 fell 6 percent overall to 2,107 tons. How did the price of gold react?

Gold vs Jewelry Demand

Gold Price vs Jewelry Demand 2019

Marginal Utility?

The subject of marginal utility of gold and jewelry came up in a Twitter discussion on May 30.

Jewelry demand is actually a contrary indicator (people buy more when price is down).

Supply of Gold

Nonsensical analysis of gold demand happens because people do not understand the the supply of gold nor the driver for the demand.

Misunderstanding the Supply of Bitcoin and Gold Leads to Silly Projections

I covered the topic recently in Misunderstanding the Supply of Bitcoin and Gold Leads to Silly Projections

People confuse jewelry buying with the demand for gold and bitcoin mining with supply of Bitcoin.

Contrary to popular myth, the supply Bitcoin goes up every day. This is why halving the mining rate of Bitcoin did nothing for the price.

Similarly, people confuse demand for new gold jewelry as the demand for gold. 

Misconceptions About Gold

The best explantionation of the demand for gold comes from Pater Tenebrarum at the Acting Man blog. He was my teacher in Austrian economics.

Tenebrarum wrote Misconceptions about Gold as a guest post on my blog in June of 2007 under the pseudonym Trotsky, a name he regrets. Gold was $650 at the time.

One can further illustrate gold's unique nature as money with a study of gold prices vs. jewelry demand. If record fabrication demand for gold (jewelry) must be good for the price of gold, then a historic high in jewelry demand should in theory coincide with a high gold price.

However, record high jewelry demand in 1999 - 2000 in actual fact coincided with a 20 year bear market low in the gold price - the exact opposite of what traditional commodity supply/demand analysis would suggest.

We can therefore conclude that there must be a source of gold demand that is of far greater importance than the jewelry and industrial demand components, and that demand constitutes the true driver of the price of gold in terms of fiat money.

Indeed, there is. This demand component is called 'monetary demand'. Monetary demand and the supply of gold is actually best described as the 'degree of reluctance of the current owners of gold to part with their gold at current prices' since, as mentioned above, some 160,000 tons are owned by somebody already.

Monetary Demand is the True Price Driver

Someone must hold every ounce of gold ever mined. Similarly, someone most hold every Bitcoin ever mined. 

Diminishing new supply is meaningless in both. Demand for the total supply is what matters. 

Gold rises and falls based on monetary demand. If one views Bitcoin as a competing currency, the same claim can be made but speculation clearly plays a larger role for Bitcoin and it has additional problems with potential central bank or government regulation.

Gold vs Faith in Central Banks

Gold vs Faith in Central Banks 2020-01-01 PNG

I need to update that chart but it tells the right story. 

Gold's monetary demand is a function of faith in central banks. When ECB president Mario Draghi promised to do "Whatever it Takes" to save the Euro faith in central banks was temporarily restored.  

That faith continued until the Fed's talk of "normalization" dies on the vine. And now?

If you think the Fed has things under control you left your thinking cap on Mars.


Comments (32)
No. 1-16


Google is an amazing company with innovations that will change the world. self-driving for starters.

And its employees are highly compensated. The idiots in the EU would break it up


Mish, I think you responded to the wrong article.


It's a fear investment. People buy gold when they're worried about war, the economy, a pandemic, deficits, or anything else. Although I think this latest price surge is largely driven by Covid, I agree with Mish and his generally grim views. We're a heavily indebted country hell-bent on spending a lot more.


So if you buy GLD or some ETF, how do you get the gold? Gold is also another faith-based currency. Faith that you can get it. Unless you have been buying coins, the likelyhood of getting your gold is near zero especially for a country that parks it in storage in NY or wherever. It's just a proxy for faith in government


This kind of analysis is why I read your blog Mish, keep it up!


We are seeing rising interest in both precious metals and cryptocurrencies. Several factors are driving this trend. One is the idea governments have targeted cash and wish to move us towards a "cashless" society where they control our every move. Another is rooted in the idea inflation is about to raise its ugly head as currencies are debased.

Most likely the dollar will be around for a while yet and could be about to strengthen. This is not in conflict with gold moving higher because the dollars strength or weakness is generally seen in comparison to other currencies. More on the state of currencies in the article below.


"Jewelry is totally irrelevant to the price of gold"

Not really, it stabilises the price normally because jewellery purchases tend to be in fiat terms. So when gold is high jewellery purchase by weight is lower, when gold is cheaper more goes to jewellery helping support prices.

When there is financial stress a lot of gold jewellery gets sold, for profit because of high prices or out of need. So again it stabilises prices to a degree. That gold might then end up as investment for another.

Also, that background of steady demand for jewellery sets a floor or adds meaning to owning gold.

Simple investment though is what really drives prices because that is where value is traded fastest, but jewellery is also an investment even if high premiums are paid for it. It just works in a different way.


Gold and Silver surging again. Man, these guys are now stonking.


When Jane Fonda and other people who consider themselves to be absolutely right minded culture warriors, when they start saying it’s time to defund the Police and start having success with this liberal-progressive ideology, precious metals will respond dramatically to this terrifying logic!

WC Varones
WC Varones

The problem is what you're calling "the dollar."

DXY is not the dollar. That's the dollar vs. a basket of currencies. Currently, the dollar and all other currencies are going down vs. gold.


Don't quite agree with point 2. There is ofcourse a mechanical inverse relationship between the price of gold in USD and that of the USD in other currencies. The relationship is easily overwhelmed because the pricing of gold in other currencies than the USD has little weight in the markets.


As to myth number one, in repricing, money can go "poof" and vanish.


The worry is that at $2,000 (or even $4,000 eventually) the supply of fake gold is certain to rise. I was in the mid '00 involved in gold futures and we hedge our portfolio with gold ingots...we found (at out 200 gold bars) about 5 fake one. One consequence we only bought gold for reputable dealers, or it had to be "reminted" by a reputable dealer before we acquire title. Also you quickly discover that gold is "expensive" to store, and sell.

I agree there is no correlation between the USD and gold, but it is a store of wealth, never made the connection with bitcoin, but you are absolutely correct. Extration (mining) is the cost of producing new gold, just like bitcoin -- therefore it shoud exhibit the same tendencies.


exactly right. now you just have to come right on the covid story.


this is a great book to refer to for this argument. also "power of gold" authored by the great peter bernstein, who penned "against the gods", too. the comment above about DXY not being the dollar is correct. the short hiatus away from sound money is a blip in world history of money. won't be forever. cheers mish, you have a great blog.

Teddy K
Teddy K

Gold, and shortly after silver, is bought with expectation of inflation. The chart that is shown misses something VERY important, it does not factor in inflation. REAL inflation, not the CPI. So what would that 1920 gold price be from 2011 if inflation were factored in or the high from 1980? Depends on what inflation number you use. But based off of the phony CPI calculation gold price from 1980 would be about 1800-1900, but if you raise that number up by one percent per year (which is still probably way too low) but if you take inflation up 4 percent a year the price goes to 2900. (young people won't understand this cause they might believe the cpi numbers but the older you are you would understand that the cpi is crap)

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