Random Walk

THESE days everyone on Wall Street is frantically gazing into his crystal ball to forecast where inflation is headed. I don’ t need a crystal ball. I get my information from Wayne Angell, the chief economist at Bear Stearns, and his assistants John Ryding and Melanie Hardy. Those who knew Angell in his Fed days know that he is a passionate gold-bug. Now he and his team have developed a simple economic model based on fluctuations in the price of gold to predict future inflation trends.

Knowing nothing about any economic conditions or variables except today’s price of gold, the Bear Stearns model can predict roughly 80 per cent of the change in the CPI over the next 12 months. For the number crunchers out there, here is the magic formula that unlocks the mystery of inflation: CPI next 12 months = —5.32 + 0.024 x price of gold today. The basic rule of thumb, which I hereby designate the Golden Rule, is that every $10-anounce increase in the price of gold translates into about a 0.2-percentage-point increase in the CPI rate over the next year.

Featured Tags

THESE days everyone on Wall Street is frantically gazing into his crystal ball to forecast where inflation is headed. I don’ t need a crystal ball. I get my information from Wayne Angell, the chief economist at Bear Stearns, and his assistants John Ryding and Melanie Hardy. Those who knew Angell in his Fed days know that he is a passionate gold-bug. Now he and his team have developed a simple economic model based on fluctuations in the price of gold to predict future inflation trends.

Knowing nothing about any economic conditions or variables except today’s price of gold, the Bear Stearns model can predict roughly 80 per cent of the change in the CPI over the next 12 months. For the number crunchers out there, here is the magic formula that unlocks the mystery of inflation: CPI next 12 months = —5.32 + 0.024 x price of gold today. The basic rule of thumb, which I hereby designate the Golden Rule, is that every $10-anounce increase in the price of gold translates into about a 0.2-percentage-point increase in the CPI rate over the next year.