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Gold as yield play

The price of gold depends a lot upon real interest rates, which means it is insurance against some types of stock market decline
Gold as yield play

The gold price has hit a seven-month high in US dollar terms. It’s no accident at all that this has coincided with a rally in government bonds.

I say so because there has for years been a remarkably close link between the price of gold and the yield on five-year inflation-proofed US Treasury bonds: since December 2005 the correlation between the two has been minus 0.92, which is enormous by the standards of financial assets. Gold rose between 2005 and 2011 as real yields fell, fell between 2011 and 2015 as real yields rose, and rose in 2015-16 as real yields fell again.

From this perspective, it’s no surprise that gold should have rallied as real yields have fallen since the autumn.

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