What is a fixed budget?

A fixed budget is a financial plan that does not change through the budget period, irrespective of any changes from the plan in actual activity levels experienced.

Since most companies experience substantial variations from their expected activity levels over the period encompassed by a budget, the amounts in the budget are likely to diverge from actual results. The only situations in which a fixed budget is likely to track close to actual results are when:
Costs are largely fixed, so that expenses do not change as revenues fluctuate
The industry is not subject to much change, so that revenues are reasonably predictable
The company is in a monopoly situation, where customers must accept its pricing

Most companies use fixed budgets, which means that they routinely deal with large variations between actual and budgeted results. This also tends to cause a lack of reliance by employees on the budget, and in the variances derived from it.

A good way to mitigate the disadvantages of a fixed budget are to combine it with continuous budgeting, where you add a new budget period onto the end of the budget as soon as the most recent budget period has been concluded. By doing so, you gradually incorporate the actual results of the most recent period into the budget.

Another way to mitigate the effects of a fixed budget is to shorten the period covered by it. For example, the budget may only encompass a three-month period, after which management formulates another budget that lasts for an additional three months.

The fixed budget is not effective for evaluating the performance of cost centers. For example, a cost center manager may be given a large fixed budget, and will make expenditures below the budget and be rewarded for doing so, even though a much larger overall decline in company revenues should have mandated a much larger expense reduction. The same problem arises if revenues are much higher than expected - the managers of cost centers have to spend more than the amounts indicated in the baseline fixed budget, and so appear to have unfavorable variances, even though they are simply doing what is needed to keep up with customer demand.

The reverse of a fixed budget is a flexible budget, where the budget is designed to change in response to variations in activity levels. There tend to be much smaller variances from the budget when a flexible budget is used, since the model tracks much closer to actual results.

Similar Terms

A fixed budget is also known as a static budget.

Rolling budgets

A method of budgeting in which as each month passes, an additional budget month is added such that there is always a 12-month budget.


A rolling budget is a budget that is continually updated to add a new budget period as the most recent budget period is completed.


If a company uses participative budgeting to create its budgets on a rolling basis, then the total employee time used over the course of a year is substantial. Consequently, it is best to adopt a leaner approach to a rolling budget, with fewer people involved in the process.


Advantages and Disadvantages of the Rolling Budget

This approach has the advantage of having someone constantly attend to the budget model and revise budget assumptions for the last incremental period of the budget. The downside of this approach is that it may not yield a budget that is more achievable than the traditional static budget, since the budget periods prior to the incremental month just added are not revised.


What is continuous budgeting?

Continuous budgeting is the process of continually adding one more month to the end of a multi-period budget as each month goes by. This approach has the advantage of having someone constantly attend to the budget model and revise budget assumptions for the last incremental period of the budget. The downside of this approach is that it may not yield a budget that is more achievable than the traditional static budget, since the budget periods prior to the incremental month just added are not revised.


What is incremental budgeting?
Saturday, December 11, 2010 at 10:19AM

Incremental budgeting is budgeting based on slight changes from the preceding period's budgeted results or actual results. This is a common approach in businesses where management does not intend to spend a great deal of time formulating budgets, or where it does not perceive any great need to conduct a thorough evaluation of the business.


The primary advantage of incremental budgeting is that it is simple to use, being based on either recent financial results or a recent budget that can be readily verified. Also, if a program requires funding for multiple years in order to achieve a certain outcome, incremental budgeting is structured to ensure that the funds will keep flowing to the program.

There are several downsides of incremental budgeting that make it a less than ideal choice. The issues are:
Incremental in nature. It assumes only minor changes from the preceding period, when in fact there may be major structural changes in the business or its environment that call for much more significant budget changes.
Fosters overspending. It fosters an attitude of "use it or lose it" in regard to budgeted expenditures, since a drop in expenditures in one period will be reflected in future periods, too.
Budgetary slack. Managers tend to build too little revenue growth and excessive expenses into incremental budgets, so that they will always have favorable variances.
Budget review. When the budget is carried forward with minor changes, there tends to be little incentive to conduct a comprehensive review of the budget, so that inefficiencies and budgetary slack are automatically rolled into new budgets.
Variance from actual. When the incremental budget is based on a prior budget, there tends to be a growing disconnect between the budget and actual results.
Perpetuates resource allocations. If a certain amount of funds were allocated to a specific business area in a prior budget, then the incremental budget assures that funding will be allocated there in the future, too - even if it no longer needs as much funding, or if other areas require more funding.
Risk taking. Since an incremental budget allocates most funds to the same uses every year, it is difficult to obtain a large funding allocation to direct at a new activity. Thus, incremental budgeting tends to foster a conservative maintenance of the status quo, and does not encourage risk taking.

In short, incremental budgeting results in such a conservative mindset in a business that it may actually be a noticeable driver in destroying a company over the long term. You should instead engage in a thorough strategic re-assessment of a business when constructing a budget, as well as a detailed investigation of expenditures. The result should be significant changes in the allocation of funds from period to period, as well as targeted operational changes that are intended to improve the competitive position of a business.

Spot gold to surge into $1,762-$1,773 range

SINGAPORE: Spot gold is expected to pierce into a resistance range of $1,762-$1,773 per ounce, before starting a deep correction.

The metal is still riding on an upward wave "C", progressing towards $1,762, the 100 percent Fibonacci projection level, based on the length of the wave "A".

In the meantime, a Fibonacci retracement on the fall from $1,920.30 to $1,534.49 also reveals a likely target at $1,773, the 61.8 percent level.

Given the corrective wave nature of the rise from Sept. 26 low of $1,534.49, it is highly likely for the current wave "C" to peak in the target range.

No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.


Copyright Reuters, 2011

Flexible Budget

A set of revenue and expense projections at various production or sales volumes. The cost allowances for each expense are able to vary as sales or production vary.


FLEXIBLE BUDGET is based upon different levels of activity. It is a very useful tool for comparing actual costs experienced to the cost allowable for the activity level achieved, i.e. it is dynamic in nature as compared to static. A series of budgets can be readily developed to fit any activity level. Flexible budgeting distinguishes between fixed and variable cost, thereby allowing for a budget that can be automatically adjusted to the level of activity actually attained.


Flexible Budget
A budget that considers different levels of production or sales. A flexible budget makes different amounts available to departments depending on what production or sales are realized. For example, a flexible budget may make 6% more money available to its research and development department if its revenue increases 6%.

Gold Jewellery Consumption by Country (in Tonnes)

The consumption of gold produced in the world is about 50% in jewelry, 40% in investments, and 10% in industry.

India is the world's largest single consumer of gold, as Indians buy about 25% of the world's gold, purchasing approximately 800 tonnes of gold every year, mostly for jewelry. India is also the largest importer of gold; in 2008, India imported around 400 tonnes of gold.

India	745.70	442.37	+69
Greater China	428.00	376.96	+14
United States	128.61	150.28	-14
Turkey	74.07	75.16	-1
Saudi Arabia	72.95	77.75	-6
Russia	67.50	60.12	+12
United Arab Emirates	63.37	67.60	-6
Egypt	53.43	56.68	-6
Indonesia	32.75	41.00	-20
United Kingdom	27.35	31.75	-14
Other Gulf Countries	21.97	24.10	-10
Japan	18.50	21.85	-15
South Korea	15.87	18.83	-16
Vietnam	14.36	15.08	-5
Thailand	6.28	7.33	-14
Total	1805.60	1508.70	+20
Other Countries	254.0	251.6	+1
World Total	2059.6	1760.3	+17

Macro's or VBA ?

http://bytes.com/topic/access/insights/741520-macros-vba

Although some users find Macros simple and easy to use, there are some major limitations to using them. Although you can use macros to perform tasks, there is limited control on when and how those tasks should be performed, and setting conditions can be difficult. There is however, another even stronger reason not to use macros and that is that when errors are thrown during a macro's execution it is difficult to trap the error and therefore very difficult to debug it.

Some simple VBA programming skills can replace all the functions available in a macro and, as you become more proficient there are many more tasks that can be performed which would just not be possible with macros. To itemise, the advantages of using VBA over macros are as follows:

VBA provides much more functionality than macros
Using VBA allows more complex navigation and conditions to be imposed on tasks you wish to perform. You can code functions that are just not possible with macros.

VBA allows you to trap and handle errors
All tasks can produce unexpected errors due to unforeseen circumstances. It is important to identify and trap these error exactly where and when they occur, to identify the problem and to handle the consequences. This is simple enough when using VBA.

VBA executes faster than macros
Although you may not notice the difference in speed when using simple macros, you will notice a big difference when using VBA in place of complex macros.

Using VBA makes your database more maintainable
Macros are not saved with the form they are designed to act on, but as separate objects, whereas your VBA code is saved with the form it belongs to. If you were trying to change the functionality on a form, it would not be obvious which macro you needed to change, whereas it is easy to find the appropriate VBA event(s) to change. VBA is also easier to read and follow.

Using VBA allows you to connect to other applications
This is a technique known as Automation. Using VBA allows you to work directly on applications like Word and Excel while still in Access. You can control these applications programmatically.

Using VBA allows you to use Public Variables
You can declare variables publicly either to a form or to a database by declaring them in a module. This means you can pass a value to those variables and have it retain that value for use in various of your objects (reports; forms; etc).

Some programmers still use macros for things like AutoExec which doesn't have a directly comparable facility in VBA. This macro command will execute once the database is opened. However, this can be replaced with code which is placed within the "Startup" form. This is the form that is set to open when the database is opened (See Tools / Startup...).

Access will allow you to convert existing macros to VBA.

In the macros tab select the macro you wish to convert. Then select File / Save As.... When the Save As... dialog box appears change the As from Macro to Module. In the next dialog box tick the Add Error handling and Include Macro comments. Access will open the Visual Basic Editor window and covert the macro to VBA code. When finished it will prompt with a message box, just click OK.

This is useful way to learn VBA when you are starting. You can see how Access VBA codes your macros.

Visual Basic for Applications (VBA)

Visual Basic for Applications (VBA) is an implementation of Microsoft's event-driven programming language Visual Basic 6 and its associated integrated development environment (IDE), which are built into most Microsoft Office applications.

VBA enables building user defined functions, automating processes and accessing Windows API and other low-level functionality through dynamic-link libraries (DLLs). It was also built into Office applications apart from version 2008 for Apple's Mac OS X, other Microsoft applications such as Microsoft MapPoint and Microsoft Visio; as well as being at least partially implemented in some other applications such as AutoCAD, WordPerfect and ArcGIS.

It supersedes and expands on the abilities of earlier application-specific macro programming languages such as Word's WordBasic. It can be used to control many aspects of the host application, including manipulating user interface features, such as menus and toolbars, and working with custom user forms or dialog boxes. VBA can also be used to create import and export filters for various file formats, such as OpenDocument (ODF). As its name suggests, VBA is closely related to Visual Basic and uses the Visual Basic Runtime, but can normally only run code within a host application rather than as a standalone application.

It can, however, be used to control one application from another via OLE Automation. For example, it is used automatically to create a Word report from Excel data, in turn automatically collected by Excel from polled observation sensors. The VBA IDE is reached from within an Office document by pressing the key sequence Alt+F11.

VBA is functionally rich and flexible but it does have some important limitations, such as restricted support for function pointers which are used as callback functions in the Windows API. It has the ability to use (but not create) (ActiveX/COM) DLLs, and later versions add support for class modules.

http://en.wikipedia.org/wiki/Visual_Basic_for_Applications

Nov 26 '07 #1

The Many Uses of Gold

Of all the minerals mined from the Earth, none is more useful than gold. Its usefulness is derived from a diversity of special properties. Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster. Gold is a memorable metal that occupies a special place in the human mind.

When Spanish explorers first arrived in the "New World" they met the native South Americans. These two cultures had been separated by a vast ocean, they had never touched one another, they spoke different languages and lived entirely different lives. Yet they had one thing in common - they both held gold in highest esteem and used it to make some of their most important objects.

Throughout the history of our planet almost every established culture has used gold to symbolize power, beauty, purity and accomplishment. Today we continue to use gold for our most significant objects: wedding rings, Olympic medals, Oscars, Grammys, money, crucifixes and ecclesiastical art. No other substance of the same rarity holds a more visible and prominent place in our society.

Jewelry: The Primary Use of Gold

The production of ornamental objects was probably the first use of gold over 6000 years ago. Gold is found in the pure state, is very easy to work and was probably the first metal used by humans. Today, most of the gold that is newly mined or recycled is used in the manufacture of jewelry. About 78% of the gold consumed each year is used in the manufacture of jewelry.

Special properties of gold make it perfect for manufacturing jewelry. These include: very high luster; desirable yellow color; tarnish resistance; ability to be drawn into wires, hammered into sheets or cast into shapes. These are all properties of an attractive metal that is easily worked into beautiful objects. Another extremely important factor that demands the use of gold as a jewelry metal is tradition. Important objects are expected to be made from gold.

Pure gold is too soft to stand up to the stresses applied to many jewelry items. Craftsmen learned that alloying gold with other metals such as copper, silver, and platinum would increase its durability. Since then most gold used to make jewelry is an alloy of gold with one or more other metals.

The alloys of gold have a lower value per unit of weight than pure gold. A standard of trade known as "karatage" was developed to designate the gold content of these alloys. Pure gold is known as 24 karat gold and is almost always marked with "24K". An alloy that is 50% gold by weight is known as 12 karat gold (12/24ths) and is marked with "12K". An alloy that contains 75% gold by weight is 18 karat (18/24 = 75%) and marked "18K". In general, high karat jewelry is softer and more resistant to tarnish while low karat jewelry is stronger and less resistant to tarnish - especially when in contact with perspiration.

Alloying gold with other metals changes the color of the finished products (see illustration at right). An alloy of 75% gold, 16% silver and 9% copper yields yellow gold. White gold is an alloy of 75% gold, 4% silver, 4% copper and 17% palladium. Other alloys yield pink, green, peach and even black colored metals

Financial Gold - Coinage, Bullion, Currency Backing

Because gold is highly valued and in very limited supply it has long been used as a medium of exchange or money. The first known use of gold in transactions dates back about 6000 years. Early transactions were done using pieces of gold or pieces of silver. The rarity, usefulness and desirability of gold make it a substance of long term value. Gold works well for this purpose because it has a high value, is durable, portable and easily divisible.

Some early printings of paper money were backed by gold held in safe keeping for every unit of money that was placed in circulation. The United States once used a "gold standard" and maintained a stockpile of gold to back every dollar in circulation. Under this gold standard, any person could present paper currency to the government and demand in exchange an equal value of gold. The gold standard was once used by many nations but it eventually became too cumbersome and is no longer used by any nation.

The gold used as a financial backing for currency was most often held in the form of gold bars, also known as "gold bullion". The use of gold bars kept manufacturing costs to a minimum and allowed convenient handling and storage. Today many governments, individuals and institutions hold investments of gold in the convenient form of bullion.

The first gold coins were minted under the order of King Croesus of Lydia (a region of present-day Turkey) in about 560 BC. Gold coins were commonly used in transactions up through the early 1900's when paper currency became a more common form of exchange. Gold coins were issued in two types of units. Some were denominated in units of currency, such as dollars, while others were issued in standard weights, such as ounces or grams.

Today gold coins are no longer in wide use for financial transactions. However, gold coins issued in specific weights are popular ways for people to purchase and own small volumes of gold for investment. Gold coins are also issued as "commemorative" items. Many people enjoy these commemorative coins because they have both a collectable value and a precious metal value.


Uses of Gold in Electronics




The most important industrial use of gold is in the manufacture of electronics. Solid state electronic devices use very low voltages and currents which are easily interrupted by corrosion or tarnish at the contact points. Gold is the highly efficient conductor that can carry these tiny currents and remain free of corrosion. Electronic components made with gold are highly reliable. Gold is used in connectors, switch and relay contacts, soldered joints, connecting wires and connection strips.
A small amount of gold is used in almost every sophisticated electronic device. This includes: cell phones, calculators, personal digital assistants, global positioning system units and other small electronic devices. Most large electronic appliances such as television sets also contain gold.

One challenge with the use of gold in very small quantities in very small devices is loss of the metal from society. Nearly one billion cell phones are produced each year and most of them contain about fifty cents worth of gold. Their average lifetime is under two years and very few are currently recycled. Although the amount of gold is small in each device, their enormous numbers translate into a lot of unrecycled gold.

Use of Gold in Computers

Gold is used in many places in the standard desktop or laptop computer. The rapid and accurate transmission of digital information through the computer and from one component to another requires an efficient and reliable conductor. Gold meets these requirements better than any other metal. The importance of high quality and reliable performance justifies the high cost.

Edge connectors used to mount microprocessor and memory chips onto the motherboard and the plug-and-socket connectors used to attach cables all contain gold. The gold in these components is generally electroplated onto other metals and alloyed with small amounts of nickel or cobalt to increase durability.

Use of Gold in Dentistry

How would iron work as a dental filling? Not very well... your dentist would need blacksmithing tools, your smile would be rusty a few days after a filling and you would need to get used to the taste of iron. Even at much higher expense, gold is used in dentistry because of its superior performance and aesthetic appeal. Gold alloys are used for fillings, crowns, bridges and orthodontic appliances. Gold is used in dentistry because it is chemically inert, nonallergenic and easy for the dentist to work.

Gold is known to have been used in dentistry as early as 700 B.C. Etruscan "dentists" used gold wire to fasten replacement teeth into the mouths of their patients. Gold was probably used to fill cavities in ancient times;, however there is no documentation or archaeological evidence for this use of gold until a little over 1000 years ago.

Gold was much more generously used in dentistry up until the late 1970's. The sharp run-up of gold prices at that time motivated the development of substitute materials. However, the amount of gold used in dentistry is starting to rise again. Some motivation for this comes from concerns that less inert metals might have an adverse effect on long-term health.

Medical Uses of Gold

Gold is used as a drug to treat a small number of medical conditions. Injections of weak solutions of sodium aurothiomalate or aurothioglucose are sometimes used to treat rheumatoid arthritis. Particles of a radioactive gold isotope are implanted in tissues to serve as a radiation source in the treatment of certain cancers.

Small amounts of gold are used to remedy a condition known as Lagophthalmos, which is an inability of a person to close their eyes completely. This condition is treated by implanting small amounts of gold in the upper eyelid. The implanted gold "weights" the eyelid and the force of gravity helps the eyelid close fully.

Radioactive gold is used in diagnosis. It is injected in a colloidal solution that can be tracked as a beta emitter as it passes through the body. Many surgical instruments, electronic equipment and life-support devices are made using small amounts of gold. Gold is nonreactive in the instruments and is highly reliable in the electronic equipment and life-support devices.







If you are going to spend billions of dollars on a vehicle that when launched will travel on a voyage where the possibility of lubrication, maintenance and repair is absolutely zero, then building it with extremely dependable materials is essential. This is exactly why gold is used in hundreds of ways in every space vehicle that NASA launches.

Gold is used in circuitry because it is a dependable conductor and connector. In addition, many parts of every space vehicle are fitted with gold-coated polyester film. This film reflects infrared radiation and helps stabilize the temperature of the spacecraft. Without this coating, dark colored parts of the spacecraft would absorb significant amounts of heat

Gold is also used as a lubricant between mechanical parts. In the vacuum of space, organic lubricants would volatilize and they would be broken down by the intense radiation beyond Earth's atmosphere. Gold has a very low shear strength and thin films of gold between critical moving parts serves as a lubricant - the gold molecules slip past one another under the forces of friction and that provides a lubricant action.

Uses of Gold in Awards and Symbols of Status

What metal is used to make the crown worn by a king? Gold! This metal is selected for use because gold it is THE metal of highest esteem. It would make no sense to make a king's crown out of steel - even though steel is the strongest metal. Gold is chosen for use in a king's crown because it is the metal associated with highest esteem and status.

Gold is associated with many positive qualities. Purity is another quality associated with gold. For this reason, gold is the metal of choice for religious objects. Crosses, communion ware and other religious symbols are almost always made with gold for this reason.

Gold is also used as the first place winner's medal or trophy in almost any type of contest. First place winners at the Olympic Games are given gold medals. The Academy Awards Oscars are gold awards. Music's Grammy Awards are made of gold. All of these important achievements are honored with awards made of gold.

Uses of Gold in Glassmaking

Gold has many uses in the production of glass. The most basic use in glassmaking is that of a pigment. A small amount of gold suspended in the glass when it is annealed produces a rich ruby color.

Gold is also used when making specialty glass for climate controlled buildings and cases. A small amount of gold dispersed within the glass or coated onto the glass surface will reflect solar radiation outward, helping the buildings stay cool in the summer, and reflect internal heat inward, helping them stay warm in winter.

The visor on the helmet of an astronaut's space suit is coated with a very thin film of gold. This thin film reflects much of the very intense solar radiation of space, protecting the astronaut's eyes and skin.

Gold Gilding and Gold Leaf

Gold has the highest malleability of any metal. This enables gold to be beaten into sheets that are only a few millionths of an inch thick. These thin sheets, known as "gold leaf" can be applied over the irregular surfaces of picture frames, molding or furniture.

Gold leaf is also used on the external and internal surfaces of buildings. This provides a durable and corrosion-resistant covering. One of the most eye-catching uses of gold leaf is on the domes of religious buildings and other important structures. The cost of this "roofing material" is very high per square foot; however, the cost of the gold is only a few percent of the total project cost. Most of the cost goes to the labor of highly skilled artisans who apply the gold leaf.

Future Uses of Gold

Gold is too expensive to use by chance. Instead it is used deliberately and only when less expensive substitutes can not be identified. As a result, once a use is found for gold it is rarely abandoned for another metal. This means that the number of uses for gold have been increasing over time.

Most of the ways that gold is used today have been developed only during the last two or three decades. This trend will likely continue. As our society requires more sophisticated and reliable materials our uses for gold will increase. This combination of growing demand, few substitutes and limited supply will cause the value and importance of gold to increase steadily over time. It is truly a metal of the future.

Prague: Old and New in Harmony » Buildings look like they are made of gold

This is the Capitol building in Atlanta, complete with the gold dome.

Quote

"I always have a quotation for everything — it saves original thinking.”

Dorothy L. Sayers

(1893–1957)

English novelist

Gold, Stocks and the Dollar: The Rise and Fall of a Correlation

Since President Obama was sworn into office, a strong relationship between the dollar, stocks and gold has developed. When the dollar dropped, stocks and gold rose. The mathematics of that relationship were nearly perfect.

The simple explanation for this inverse correlation -- I'm not sure whether it was valid -- was that investors bought gold as a hedge against a declining dollar and stocks because a weaker dollar would boost American exports and corporate profits. But now, that correlation is approaching zero, and as gold ATMs are starting to dot the American landscape, the implications for gold bugs are ominous.

"Close to Zero"
Between January 2009 and the end of 2010, stocks and gold rose when the dollar dropped. According to The Wall Street Journal, the correlation coefficient between stocks and the dollar was nearly -1 during that time. However, since the beginning of 2011, that connection has evaporated. "For much of the past month, that correlation has been close to zero, meaning the relationship between stocks and the dollar has been, practically speaking, almost nonexistent," explains the newspaper's Mark Gongloff.

Not only has the negative correlation between stocks and the dollar vanished, but so too has the positive correlation between gold and stocks, held for most of 2010's second half. Since New Year's Day, the relationship between gold and stocks has turned negative: Now, when stocks rise, gold falls, and vice versa, and gold's price is down 5% to $1,347 an ounce from its year-end 2010 price of $1,421 an ounce.

Is Gold an Illusory Hedge for the Dollar?

When an apparent correlation relationship dissipates, it's good to remember that there's a more subtle problem with the whole idea of analyzing correlation: the distinction between correlation and causation. Does a rising price for A cause the price of B to rise (or fall), or it just a coincidence? That's important in this case because gold bugs claim that gold is a hedge against so-called fiat currency -- meaning that people buy the precious metal because they think the dollar is essentially worthless (a view shared by U.S. Rep. Ron Paul (R-Texas).

gold ATM machines are popping up in places like Boca Raton, Fla., and Las Vegas. This feels reminiscent of how TV shows about rehabbing and flipping real estate became really popular just before the housing bubble burst. And it could mean that anyone buying gold from these machines is getting in at the top of a market about to tumble.

The Wall Street Journal article concludes that the changing relationship between the dollar, stocks and gold means investors are beginning to focus more on fundamentals. I think that conclusion is wrong. The reality is that unless big buyers and sellers have to tell regulators -- under penalty of perjury -- the real reasons for their trading decisions in real time, all other "explanations" are really just idle speculation.

That Popping Sound

It could be that gold and stocks are parting ways because investors are sensing a turn in the public mood against gold, ironically, just as Rep. Paul -- the new GOP chairman of the House committee that oversees the Federal Reserve -- is moving to push the Fed toward a gold standard.

Once investors stampede for the exits, the sound of that gold bubble popping will be loud and clear. But now that the correlation between the values of gold and the dollar has gone from near -1 to near 0, that argument goes out the window. After all, if gold's price movements have nothing to do with the rise or fall of the dollar, gold becomes a terrible hedge against a weakening dollar.

Regrettably for investors in gold, this revelation is arriving on the scene at a time when

Crude Oil Inventories

The Inverse Relationship Between the Dollar and Stocks

With interest rates nearly at zero percent in the U.S., global investors seeking higher risks and returns are borrowing dollars to invest in higher yielding instruments such as stocks and commodities leading to a strong inverse relationship between the S&P 500 [.SPX  1100.05    0.82  (+0.07%)   ] and the Dollar Index [.DXY  79.29    -0.14  (-0.17%)   ] in 2009.

The Dollar Index, a measure of the dollar against a basket of six leading currencies (EUR, JPY, GBP, CAD, CHF, SEK) is trading at a 15-month low, as it tumbled on Wednesday November 25 to an intraday low of 74.23, its weakest level since 8/7/08.  In the past week, the dollar fell to a 14-year low against the yen as it traded around 84.92 Japanese yen per USD on 11/27, its lowest level since July 1995, and down ~3.7% year-to-date.  The dollar is also significantly weaker against other major currencies such as the euro, trading well above $1.5 per euro in recent trading sessions and falling to a 15-month low against the currency.  The euro has appreciated ~7.8% against the dollar year to date.

The inverse relationship between the dollar and stocks is statistically significant with a negative correlation coefficient of -0.81 for the year and almost a perfect -1 in recent months.  This is atypical when compared to other points in history.  For example, the correlation coefficient was only -0.43 in 2008.  See the chart below how the two move opposite one another, particularly since the summer.

Looking back over the past decade, 2004 was also a notable year that showed a large inverse relationship between the S&P and the Dollar with a correlation coefficient of -0.71.  The Dollar Index fell -6.98% that year while the S&P gained 8.99%.  Like today, interest rates were notably low towards the end of 2003 to mid 2004 as the Fed had an easing period that led to a Fed Funds target rate of 1%.  As the Fed began to raise rates, the relationship weakened.  Fortunately, the economy had picked up enough to keep the stock market rising, even with a rising dollar.

According to the central bank’s FOMC Minutes in late November, rates are suppose to remain low for an “extended period of time”, meaning that the dollar could continue to depreciate until the Fed’s begins tightening.  Many analysts expect that rates may not increase until the second half of 2010.  If the relationship holds, stocks may have more room for growth.

Not only has the dollar vulnerability contributed to stronger US equity performance, but it has also buoyed currency ETF’s.  ETF’s such as CurrencyShares Australia Dollar Trust [FXA  95.9498    0.4798  (+0.5%)   ] and Wisdom Tree Dreyfus New Zealand Dollar Fund [BNZ  23.41    0.1968  (+0.85%)   ] are up 29.9% and 26.2% for the year so far. (See table below for a list Currency related ETF’s and YTD performance)