LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

The Drip, Drip, Drip of Recession
By: David Haggith

Anatomy of an Impulse Move in the Precious Metals
By: Rambus

COT Gold, Silver and US Dollar Index Report - July 19. 2019
By: GoldSeek.com

Gold Miners’ Q2’19 Preview
By: Adam Hamilton, CPA, Zeal Research

GoldSeek Radio: Bob Hoye
By: Chris Waltzek, GoldSeek Radio

Precious Metals Big Picture, as Silver Gets on Its Horse
By: Gary Tanashian

Why This Gold Rally Feels Different
By: Rick Ackerman, Rick's Picks

Currencies, the most manipulated markets in the world, and gold technical update video
By: Gary Savage

THE SILVER PRICE: Setting Up For A Breakout?
By: Steve St. Angelo, SRSrocco Report

With Willem Middelkoop essay, central bank forum takes a shine to gold
By: Willem Middelkoop

 
Search

GoldSeek Web

 
Feelin’ the Fire, Investors are Hot for Gold


 -- Published: Wednesday, 19 March 2014 | Print  | Disqus 

By Frank Holmes

Negative Real Interest Rates & Gold

 

Gold seems to be sparking more attention these days, as investors have seen the precious metal steadily rise from its December low of around $1,200, to a new high of $1,350 just three months later.

 

What’s Driving Gold?

The media has been focusing on the conflict in Ukraine and Russia as the main driver for gold, but I think an equally important driver relates to real interest rates.

 

For gold, the real fuel lies in negative-to-low real rates of return. Historically, the gold price rises when the inflationary rate (CPI) is greater than the current interest rate. Similarly, when real interest rates go positive, you can expect the gold price to drop.

 

Investors can watch out for two factors to see if the embers still spark for gold. Take a look at what happened over the past year with real interest rates and gold:

 

 

A Year in Review

  • A year ago in March 2013, the five-year Treasury yield was offering investors 0.88 percent, while inflation was 1.5 percent. This equaled a real rate of return of -0.62 percent, so investors were losing money. That month we saw gold reach as high as $1,614.
  • The five-year Treasury yield rose to 1.74 percent in December of that year, as inflation lowered to 1.20 percent, returning a positive rate of 0.54 percent. What happened to gold? The price dropped to a staggering $1,187.
  • Today inflation has gone up 40 basis points to 1.60 percent while the five-year Treasury yield is at 1.53 percent. A negative real rate of return has resurfaced. Meanwhile, gold rose to $1,350.

More Inflation Coming?

Inflation has been off the radar for most people in the U.S., but Macquarie Research made an interesting observation as wage growth experienced the largest monthly increase in more than three years. Going back more than 15 years, you can see the six-month annualized change of 3.3 percent is “the highest pace of wage growth in over five years,” says Macquarie.

 

 

Usually, wage growth leads to an increase in the cost of goods, which translates to higher inflation.

 

And, with the Federal Reserve expected to keep rates low for a period of time to allow the economy to continue growing, it looks like real interest rates will remain low-to-negative, which should keep investors hot for gold.

 

Check out our latest Special Gold Report to read more on how the gold price is driven by Fed policy, unemployment and inflation.

 

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.


| Digg This Article
 -- Published: Wednesday, 19 March 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.