For this Sunday’s commentary, we will move beyond consideration of the recent violent volatility in the gold price. We will we use monthly data points, not daily ones, smoothing the daily jags. We will also ignore the recent surge in Chinese demand for gold as evidenced by the surge of kilograms of gold demanded and sold via gold warrants that trade in Shanghai. Readers can learn more about the Chinese gold warrant at the link below.
“Shanghai Gold Benchmark Price” | Shanghai Gold Exchange,
https://en.sge.com.cn/data_BenchmarkPrice
There, the chart depicting the daily gold benchmark price in Shanghai demonstrates the volatility that is short-term trading.
These daily ups and downs are not our focus here. Today’s commentary will also ignore any changes in jewelry demand or in speculative trading of gold. And it will ignore any changes in margin requirements imposed on speculative gold traders by regulatory authorities.
Instead, in today’s commentary readers will find four charts and an explanation for each one. Today’s summary of research focuses on the perceived default risk attributable to the United States Treasury debt as evidenced in market-based prices for credit default swaps (CDS) on the sovereign debt of the US. We have written about CDS previously. The notional value of CDS is in the trillions (source BIS).
In my opinion, the market for US CDS is best and most liquid when priced in euros. With that in mind, we did this study using the gold price denominated in euros and the CDS price denominated in euros. Of course, that means any trader or investor in gold must consider changes in the euro-dollar currency exchange rate. For this commentary, however, we have ignored that fluctuating exchange rate and will leave it to each reader to determine his/her own FX forecast.
We searched for correlation (Pearson) and tested for forecastability or causality (Granger). The four charts below depict the results, and each has an explanation of method so that any researcher can do their own examination and confirm or discredit our observations.
Today’s graphs are a result of months of searching for information that would help explain the movement in the price of gold. Many thanks to Austin Hackenberg of Cumberland Advisors for assistance. Data are sourced from Bloomberg. Calculations are derived using Microsoft’s assistance with technical products. There is no guarantee of accuracy; this is our best effort and may have errors.
We show a 3-month time horizon and a 12-month time horizon with monthly data points. We find statistical significance in each. However, while statistical evidence may be helpful in estimating the future price of gold using a present set of variables, please note that it is not a guarantee of any future performance. Likewise, readers are reminded that past results do not guarantee any future outcomes.
Causality is a statistical term and doesn’t mean that the reason for the linkage between one price and another future price is explained. Granger causality only says that the statistics from the past show one item has forecast another item in the prior period. Whether that pattern continues or not is undetermined. (For more information about Granger causality, see “Introduction to Granger Causality” from Aptech.)
The charts show that CDS leads the gold price by a range of 2 to 22 months with a robust directional trend. The work does not predict the price of gold, but it does suggest the direction of price change when using monthly data points.
It also suggests that, as CDS prices have risen since 2011, the gold price has increased, although the short-term fluctuation timing of that increase is very difficult to predict. An interpretation is that the CDS price allows the estimation of the risk of a US default and that the risk of that default event is greater than zero. For further discussion see
“What Does the CDS Market Imply for a U.S. Default?” Economic Perspectives, No. 4, October 2023 | Federal Reserve Bank of Chicago,
https://www.chicagofed.org/publications/economic-perspectives/2023/4
This research paper explains how that default probability estimate is derived. Thus, CDS prices rising imply that market agents see a rising US default risk in the future. That explains the “steepening” of the CDS term structure. The farther out you go in the term structure, the higher the CDS price. That correlation also suggests that gold has a characteristic of rising in price as CDS prices change, because part of the gold-price-discovery mechanism is tied to the perception of market agents that there is a non-zero risk of US default.
We know the US default outcome is a binary event. The US either defaults or doesn’t default. So far, it has never defaulted. We also know that all major credit agencies have downgraded the United States of America from the AAA highest designation. That downgrade doesn’t mean a US default is imminent. A $31 trillion GDP economy with world reserve currency status is not at risk for default today.
Only political stupidity would trigger such a default. But, as we have witnessed since the Newt Gingrich affair in 2011, such stupidity is possible in American politics.
Readers are advised to do their own estimation. Today’s commentary is not investment advice and not a recommendation to trade anything. It is merely a report about some ongoing research we have been doing and continue to do. That research effort is not completed, so this is an interim summary.
As I see it, the CDS price on US Treasury debt is a market-based price that tells a story about how market agents are viewing American behavior as it relates to the US federal debt. We have already established that CDS prices change in response to political attacks on the Federal Reserve. The Lisa Cook Affair offers direct evidence.
Now we offer a possible linkage that extends from that CDS price to the price of gold. We will continue our work on this subject and publish again in the future.
We hope readers find these observations of interest.
Here are the four charts with an explanation about each one.
Chart #1 Monthly CDS & Gold Priced in Euros – 12-Month CDS Lag
The above chart graphs the monthly prices of the 5-year US CDS (blue line) and spot gold (gold line) starting on October 14, 2013. The CDS prices have been purposefully lagged by 12 months to match the second area of interest identified in Chart #4. Additionally, the CDS price has a 12-month simple moving average (SMA) applied to reduce displayed price volatility. This larger SMA smooths the CDS price line significantly more than the 3-month SMA used in Chart #2. This is to show the longer-term movements in CDS price. Note the similar price movements of CDS and gold across the entire timeline (2013–2024).
Chart #2 Monthly CDS & Gold Priced in Euros – 3-Month CDS Lag
This is the same chart as Chart #1, but the CDS prices have been lagged by 3 months to match the first area of interest identified in Chart #4. Additionally, the CDS price has a 3-month simple moving average (SMA) applied to reduce displayed price volatility by slightly “smoothing” the line. Again, note the similar style of price movement between CDS and gold during the 2014–2018 period and 2020–2022.
Chart #3 Monthly CDS & Gold Priced in Euros – Pearson Correlation Study
The above chart graphs the coefficient values from a Pearson correlation study of the monthly prices of US CDS and spot gold. The Pearson correlation study measures the linear correlation between two sets of data. The coefficient value falls between the values of -1 and +1, with -1 being perfect negative correlation and +1 being perfect positive correlation. A value of 0 means there is no correlation between the two data sets. Monthly CDS prices were lagged by varying degrees (1–36 months) to test the correlation relationship between today’s spot gold price and previous CDS prices.
For more information about Pearson causality, see: Pearson Correlation Coefficient (r) | Guide & Examples
Chart #4 Monthly CDS & Gold Priced in Euros – Pearson Correlation vs Granger Causality Study
The above chart integrates the Pearson correlation study with a Granger causality study for monthly CDS and gold prices. The Granger causality study is a statistical test to determine if one time series forecasts another. To do this, the Granger causality study lags a variable, in this case monthly CDS prices, over multiple periods to test statistical significance. Study values are expressed in P-values, where lower values (usually those below 0.05) are considered statistically significant. P-values higher than 0.05, but less than 0.10, can also be considered significant – hinting towards causality.
One thing to note is that Granger causality testing does not test true causality between two variables. For example, the test does not determine that changes in CDS price directly cause the price of gold to change. It simply tests the ability for one variable to forecast another.
Additionally, there are two red boxes on the chart that highlight areas of interest. This includes the 3-month, 11-month, and 12-month lag. The 3-month lag is of interest as it is where both a strong positive Pearson coefficient and significant Granger causality P-value occur. The 11-month and 12-month lags are important, as this is where the P-value for the Granger causality test is considered statistically significant.
In closing, let me recommend John Authers’ January 28 Bloomberg column,
“Look at Them Yo-Yos Make Your Money Worth Nothing,” Bloomberg,
https://www.bloomberg.com/opinion/newsletters/2026-01-28/look-at-them-yo-yos-get-your-money-worth-nothing
His entire article, a wide-ranging inventory of factors impacting the US dollar, is well worth a read. In the piece, John kindly mentioned my work, using a chart regarding the Chinese buying of gold:
Why is CIPS driving the market? Kotok argues that “American behavior is chasing market agents away from the SWIFT system.” They go to Shanghai and use Chinese gold warrants as a vehicle instead. He lists advantages that include no futures contracts, tokens, or security with the exchange, and that it’s “not visible to geopolitical western prying eyes.”
Upcoming Talks on Gold
I am scheduled to speak on the subject of gold and financial markets in Nassau on March 3, 2026, at the Global Interdependence Center’s upcoming Central Banking Series Conference with the University of the Bahamas. This year, the focus for the March 3–4 conference is “Opportunities and Challenges in a Dynamic Economic Landscape.” For more information about the schedule, speakers, and registration, see
In early April, I’ll travel to Vineland, NJ, to speak at a Vineland Chamber of Commerce luncheon on April 7. The topic will be global monetary policy and payments and what is driving up the price of gold. For details and registration, see
Further Reading
“Dollar Fears Are Flaring As Trump Rekindles Debasement Trade?” | Bloomberg (paywall),
https://www.bloomberg.com/news/articles/2026-01-30/dollar-fears-are-flaring-as-trump-rekindles-debasement-trade?cmpid=BBD020226_politics&utm_campaign=bop&utm_medium=email&utm_source=newsletter&utm_term=260202“Sanctions, SWIFT, and China’s Cross-Border Interbank Payments System,”
https://www.csis.org/analysis/sanctions-swift-and-chinas-cross-border-interbank-payments-system“The perils of narrowing fiscal spaces,” BIS Working Papers No. 1328 | BIS,
https://www.bis.org/publ/work1328.pdf
(Hat tip to Torsten Slok, Chief Economist at Apollo Global Management, for recommending this paper to his readers.)“Gold Is Fixing the Trade Deficit, but Only on Paper” | Wells Fargo, https://wellsfargo.bluematrix.com/links2/html/47994f23-2bbb-4c1d-a302-1737e61b4071
Related Kotok Report Commentaries
“SCOTUS Decision on Lisa Cook: Financial Market Impact?” | Kotok Report,
https://dkotok.substack.com/p/scotus-decision-on-lisa-cook-financial“The Lisa Cook Affair” | Kotok Report,
https://dkotok.substack.com/p/the-lisa-cook-affair“Gold!”
https://dkotok.substack.com/p/gold“President ‘Fiscal’ and the Road Ahead” | Kotok Report,
https://dkotok.substack.com/p/president-fiscal-and-the-road-ahead“Terrific Interview for Understanding Today’s Markets” | Kotok Report,
https://dkotok.substack.com/p/terrific-interview-for-understanding“Gold? Sovereign Wealth Fund” | Kotok Report,
https://kotokreport.com/gold-sovereign-wealth-fund/
