What it measures
The Dollar Erosion Index is the historical percentile of three lenses on dollar purchasing power: gold price in dollars (the oldest reserve asset), the real Fed funds rate inverted (negative real rates erode purchasing power over time), and M2 money supply 24-month growth rate (monetary expansion outrunning the real economy). High readings mean the dollar is structurally weakening; low readings mean the dollar is structurally strong.
Why these three components
Gold in USD is the cleanest long-term read on dollar purchasing power. Gold has no yield, no earnings, no story — it just is. When it takes more dollars to buy the same ounce, the dollar lost value. Real Fed funds inverted captures monetary posture: when the Fed holds rates below inflation for years, savers and bondholders are being silently taxed in real purchasing power. M2 24-month growth captures the monetary base expanding faster than the real economy. Together: the price story (gold), the policy story (real rates), the supply story (M2).
Historical reference points
1980 (Volcker peak): real rates positive, dollar strong vs gold, index reads CALM. 2000 dot-com: dollar strong, index WATCHFUL. 2011 post-QE: gold near record vs dollar, index reads MANIA. 2020-22 (COVID stimulus): M2 ballooned 25% in 18 months — index spiked into MANIA. 2024-26: gold making fresh nominal highs, M2 at record share of GDP.
How to read it
This is not a trading signal. It is the chart that asks: how much faith does the world still place in the dollars purchasing power? Stewards thinking about long-term capital preservation, generational wealth transfer, and reserve composition watch this. A multi-year ELEVATED or MANIA reading is the regime where hard assets (real estate, gold, productive infrastructure) historically outperform paper assets.
Revision — 24 September 2026
The gold component read the LBMA gold price from FRED, which stopped publishing it on 3 June 2026. From then until this revision the index computed on 60% of its weight. Gold now comes from the SPDR Gold Shares ETF (GLD), which tracks the gold price; the rest of the method is unchanged, and history since June was recomputed.