– Gold Tailwinds Rising As It Enters Real-Yield Sweet Spot:
By Simon White, Bloomberg Markets Live reporter and strategist
Real yields should provide an even greater tailwind for gold through the rest of 2023, supported by a weaker dollar and by buying from reserve managers.
Gold is flirting with all-time highs versus the dollar and several other currencies, while it is at its highs versus several more currencies, such as the Japanese yen, the Australian Dollar and the Indian rupee.
Gold is often simplistically taken as an inflation hedge. However, the correlation between gold returns and CPI is very close to zero over the long term. Instead, the interplay between inflation and interest rates — i.e. real rates — is more meaningful for gold.
Gibson’s Paradox stemmed from the observation that real interest rates and gold move inversely to one another (named a paradox by Keynes as it contravened standard economic theory). Gibson’s Rule said that for every percentage point the real fed funds rate was below 2%, gold should rally 8% over the next year.
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