New Dynamics in the Gold and Currency  Markets Jude Wanniski and Michael Darda October 14, 2003

There are several reasons why the Polyconomics analytical model has been able to stand the test of time while many others have fallen by the wayside in forecasting market movements. The most important is our use of the dollar/gold exchange rate as a primary signal of market direction in stocks and bonds. Other models frequently become confused because they are unable to distinguish between “inflation,” “deflation,” “reflation,” and “disinflation,” not having our intellectual anchor: the concept of an optimal value of a currency relative to gold in any national unit of account. Because the total above ground supply of gold is so massive relative to its annual flow, the price of gold is the ultimate signal of the dollar’s value. This is why the price of gold tends to lead all other commodities priced in dollars.