If you think you know where real US interest rates are heading, perhaps you should consider becoming a gold trader.
As this chart from Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank shows, where one goes, the other tends to follow. For clarity, real 10-year US note yields are the nominal rate less inflation, with the line inverted by Dhar.
“Gold prices and US 10-year real yields have historically had a tight inverse relationship. We believe this relationship will continue to hold on the basis that lower yields should increase the appeal of non-US interest bearing assets like gold,” says Dhar.
“Therefore a higher Fed Funds rate will, all else held equal, have a negative impact on gold prices.”
Of course, as Dhar suggests, there are other considerations, including inflation rates, levels of risk aversion and movements in the US dollar.
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