Total U.S. Debt and Gold - Craig Hemke (27/02/2018)

by Craig Hemke, Sprott Money:

After rising together through 2012, the past five years have seen a massive divergence between the total amount of accumulated U.S. government debt and the price of COMEX gold. When, if ever, will we see this correlation reappear?

After falling together through the late 1990s, the price of COMEX god and the total accumulated U.S. debt began to rise together since 2002. With the help of Nick Laird at GoldChartsRUs, we’ve been able to plot this relationship on the chart below:

As you’ll recall, and as you can see in the chart above, massive U.S. military efforts and the economic collapse during The Great Financial Crisis led to a surge in the total US debt from $6T to $15T in the ten years between 2003-2012. And what happened to the price of COMEX gold over the same time period? It moved up from $400 to $1,800 per ounce.

However, a (not so) funny thing happened in late 2012. The price of COMEX gold began to consistently fall, this despite the over $1T QE3 program that The Fed ran from late 2012 to early 2014 AND a continuing surge in total U.S. debt from $15T to $20T.

Of course, we can debate WHY and HOW this occurred, but that’s a topic for another day. For now, let’s just take another good, long look at that chart of total debt and gold.

It could be said that, beginning with The Great Financial Crisis, gold got ahead of itself. Price had consistently risen with the accumulated debt through 2009 but, by 2011, it was considerably above the established trend. In the correction that followed and ended in 2015, you might note that price fell to roughly the same distance below the established trend. Perhaps this visual aid will help?

Simply put, it now appears that the price pendulum had swung just as far downward in 2015 as it had swung upward in 2011. Thus it could also be said that if gold was overvalued in 2011, it was equally undervalued in 2015.

So, now the question becomes: where does price go from here? In the months ahead, will price at least move back to the apparent median line of the accumulated U.S. debt? If so, that would imply something back around $1,800 or $1,900. Could it move to another bullish extreme, as in 2010-2011? Another financial crisis could cause such a run, and that would imply something closer to $2,500.

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