Gold shrugging off higher real rates
Chart of the Day
For much of 2019 to 2021, gold prices and real interest rates moved in tandem, with declining real yields leading to higher gold prices - the logic being that, as a zero-yielding asset, the opportunity cost of holding gold declines as real rates fall. By the same logic, rising real rates should spell trouble for the precious metal. Yet even though the 10-year real yield has now increased by close to 0.7% since the new year, gold prices have held. To some extent, this is perhaps just because gold didn’t rise alongside the latest decline in real yields in mid-2021. Yet another explanation is that, as traders are worried about overvaluation elsewhere in the market, and therefore the risk that bond or equity holdings will lose value, they are willing to hold on to gold even as real rates rise.
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