By Chris Gilbert Waltzek
''While preparing for this week's Goldseek.com Radio,
my attention was drawn to a little known economic theory proposed by a
British economist 90 years ago. In 1923 Alfred Herbert Gibson published a
paper regarding the negative correlation between interest rates and
inflation in Banker's Magazine (White, 2011).
John Maynard Keynes later coined the term Gibson’s Paradox in 1930
(Keynes, 1930). Unlike his contemporaries, Keynes embraced Gibson’s
finding as one of the most established and profound in the field of
economics. I concur Gibson’s Paradox deserves to be recognized as an
economic law, not merely a theory.
Subsequent researchers proposed that Gibson's Paradox explains much of the price movement in the gold market (Summers & Barsky, 1988).
Research indicates that the gold price and real interest rates are
highly negatively correlated - when rates go down, gold goes up. It has
been rigorously back-tested and stands the test of time via not only
theoretical evidence, but empirical research. In fact, regression
analysis reveals a very high f-statistic which adds statistical
support to the notion - when real interest rates are below 2%, a bull
market in gold is virtually certain.''