The Fed's dual mandate since 3/6/2009

(1) Increase the price of gold (i.e. devalue the dollar against gold to reduce the US debt burden and help exports)
(2) Decrease the VIX volatility index (i.e. manage perceptions to keep people calm, distracted, and willing to borrow and spend)

There's a little known index that measures how well the Fed is doing its job. It's called the Dow Jones Industrial average.

The chart above shows two exponential moving averages since the March 2009 market bottom: one is a 10-day EMA of the Dow, the other is a 20-day of EMA of GLD/$VIX. Can you tell which is which?

Here's the daily chart of the same:

Note the irregular sharp drop in the GLD/$VIX over the past few days.

In short, the Fed wants to raise the price of gold but must not let it rise in such a way that the $VIX will jump. If/when the Dow starts to tank, VIX will go up, and the gold should rise to stanch the fall.


Funky Tape said...

Now that shit is gold, right there. You never cease to amaze me, Mr Jenkins.

See M Armstrong's blog post today? Weekly $1579+ close or else $1460 at least. Yikes.

S Roche said...

Interesting stuff GM, I'm collecting gold price "correlations"...I'll add this to the list.

Any other suggestions would be most welcome.

Biosci said...

O/T, but I can't resist. Has anyone in the metals commentariat mentioned the recent price plunge in the context of the USG sequester? It seems to me that budget cuts -> lower deficit -> dollar positive -> gold negative, and that gold price is performing in correlation with the market's collective judgment of the probability of the sequester actually happening (which increases as we draw closer to March 1).

If true, this thesis might lead to a "sell (the dollar) on the news" event when the sequester hits, and certainly sets up a snapback when the inevitable sequester-fixing spending bill gets passed.

Gary said...

Interesting thing I noticed last night watching the gold price in the last 2 hours of trading.

Have a look at the chart, and then read Martin Armstrong's note:

Slow Loris Larry said...

Another one for S Roche:

The chart herein may already be in your collection, but even if so there are some other interesting tidbits to be found here: