On QE3, Google Trends and Gold Price

The ongoing hype over the expectations of another QE3 to be announced by the FOMC in the near future (the next FOMC meeting will be held on September 12th and 13th) made me think about the relation between the speculations of another Quantitative Easing in the U.S and the changes in the price of gold. I have already written about the relation between U.S money base and gold in the past. This time I wondered if there is a good way to show the relation between the speculation overQE3 and gold. Apparently there is: Thanks to Google Trends.  

A quick search in Google Trends for the term “QE3” in the past couple of years presents the shifts in the Google search volume around the world for the term QE3.

The chart below shows the developments of the weekly search volume for the term “QE3” between 2011 and 2012. It also shows progress of the price of gold throughout those years.

Seach in Google for QE3 and Gold Price 2011-2012

As seen above, the peak of the search volume was back in August 2011 when the U.S was facing a problem in raising the debt ceiling and was downgraded by a rating agency from AAA to AA+.

In recent weeks the hype over another QE program is also noted in the chart, even though it’s not at the same high volumes as it was back in August 2011.

The chart also shows a strong relation between gold and the search volume for the QE3. Further, the linear correlation between the (lagged by one week) search volume for the term “QE3” and gold percent changes is 0.33. This is a mid-strong correlation.

This is obviously more of an anecdotal commentary and not something that could be used to determine the future changes in gold price.

But I think this chart is able to convey the strong relation between the hype and speculation over QE3 and the changes in the price of gold.

 

A Thanks to Furman for the idea for the post.

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