Thread by @CapOrbit

A thread that has some thoughts on gold, USDINR and recessions.
This is the long term chart of gold in USD (XAU/USD in investing.com)
Period considered - from Jan 2007 to date

the same gold in USD series (right axis) with USD-INR (left axis).

Gold is considered as a safe-haven during crises and a store of value when currencies/broad money (M3) is debased continuously by governments, especially more so, after the Bretton Woods era ended in 1971 (2/n)

I was interested in seeing behaviour of gold in USD during the global crisis of 2008. We zoom in to CY08, in the first chart. (same data - XAU and USD-INR)
In the second chart, see the same series but showing % moves through the year.
INR depreciated by 22%. Gold rose 3.5% (3/n)

Without delving too deep into it, there were dollar shortages across the world in 2008, because of the reserve currency status of the dollar. Capital flight was seen in emerging markets. Dollar liabilities needed repaying and liquidity was scarce. (4/n)

federalreserve.gov/monetarypolicy…

For an Indian investor owning gold, they gained in '08, but primarily because of INR weakening. Gold price in USD did not move as much during the tough year of 2008. Now let us see what happened in 2007 and bring in the rate cuts of the Fed. (5/n)

I've used the fed funds composite interest rate in investing.com as a proxy for the fed rate. See marked zone for gold price increase from Aug-07 to Feb-08, almost a 45% increase! (6/n)

Interestingly, gold in USD does not rally even though the crisis was deepening in '08. Is gold not immune from pressures on dollar liquidity? Is the dollar the best store of value in a crisis? I am not sure but it is an interesting pattern as we see current moves (7/n)

The Fed did a quick reversal in stance and reduced rates recently. See marked zone for what gold did. Similar to late 2007. Question from a fundamental perspective then is whether gold can be expected to rise further until there is an acute problem in the global economy. (8/n)

If it is analogous to 2008, then it rises from here for some more time because the reduction has just started. There are obviously more variables at play. I have made an attempt to understand interplay between a few.

(9/n)

For an investor/trader in India, the INR weakening may have stronger probability than gold in USD rising if a global storm is about to hit (keeping 2008 as the analogue). If one buys gold in INR, one is taking gold price risk too in addition to USD-INR risk.
(10/n)

Separately, a trend-follower, would already be long :)

There is simplicity in the TF route where you assume that all the things that matter are in the price :)
(11/n)

I am looking to sharpen my thought process at all times. Please share your views, and differences of opinion, if any. Thanks. (n/n)

This thread was in context of a possible recession in US. Global stats are weak anyway and are expected to weaken further.