Erb says we should not blithely dismiss his simple gold-interest rate model because it has had impressive explanatory power in recent years. Consider a statistic known as the r-squared, which reflects the degree to which fluctuations in one thing predicts or explains changes in another. The r-squared ranges between 0 and 1, with 1 indicating the highest degree of predictive power and 0 meaning that there is no detectable relationship.

In the case of the gold-interest rate correlation over the last decade, Erb told me in an interview, the r-squared is a very high 0.

Click here for a summary of his findings.

Gold’s Correlation to the Equity Markets

Indeed, many of the drugs that get FDA approval have lower r-squareds between their use and positive medical outcomes. At the beginning ofof course, that yield stood at 1. That point was reached on Dec. Impressive as his simple model has been, however, Erb stresses that he is not recommending that gold traders focus only on interest rates when determining whether they should be in or out of the gold market.

What factor or factors does Erb suggest that gold traders focus on? Since that ratio historically has averaged 3. Currently, the gold-CPI ratio stands at 5. Click here to inquire gold price and stock market correlation subscriptions to the Hulbert Sentiment Indexes. Mark Hulbert has been tracking the advice of more than financial newsletters since By using this site you agree to the Terms of ServicePrivacy Policyand Cookie Policy.

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