What determines the price of gold? For much of the past decade the answer was easy: the price of money. The lower rates fell, the higher gold climbed, and vice versa.
Gold is the quintessential “anti-dollar” — a place to turn for those who distrust fiat currency — so it seemed natural that prices would rise in a world of low real interest rates and cheap dollars. Or when rates went up, gold, which pays no yield, naturally became less attractive, sending prices tumbling.
Well, not anymore.
As inflation-adjusted rates soared this year to the highest since the financial crisis, bullion has barely blinked. Real yields — measured by the 10-year Treasury inflation-protected securities, or TIPS, — jumped again on Thursday to the highest since 2009, while spot gold nudged down a mere 0.5% the same day. The last time real rates were this high, gold was about half the price.
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