A chart at Jesse's Cafe Americain inspired me to crunch the debt numbers on my own. That chart compares US debt to the gold price and showed a very high correlation (R-squared of 0.93).
I downloaded monthly public debt data from the Treasury starting in 2001 and historical gold prices from Kitco, then ran my own linear regression using the open source R program. The R-squared was was 0.9288, confirming the value from the chart at Jesse's site. This is the regression chart for the 2001-2010 data:
The linear regression formula (without the error term) is:
GOLD PRICE (nominal) = -522.86 + (.1334 * US-debt-in-billions)
If we take the Obama administration estimates of $1 trillion dollar deficits for the foreseeable future, the model makes this prediction (with 95% confidence):
June 1, 2016: US debt = $19 trillion
price of gold (nominal) = 1849.42 (low), 2011.84 (best fit), 2174.27 (high)
Now, some caveats. Below is an annual regression from 1971 which still has a good correlation (0.5564), but predicts lower prices. Correlation is not causation, and I suspect there are many other factors that weigh on the gold price, both positive and negative.
After confirming the original chart, I went back to Treasury and gathered annual debt numbers as back to 1971 when the final dollar link to gold was broken. The R-squared for the larger data set is 0.5564. This is the regression chart for the 1971-2010 data:
The linear regression formula (without the error term) is:
GOLD PRICE (nominal) = 181.46 + (0.0518 * US-debt-in-billions)
And this is what the updated model predicts (with 95% confidence):
June 1, 2016: US debt = $19 trillion
price of gold (nominal) = 780.95 (low), 1165.66 (best fit), 1549.94 (high)
