Precious Metals

A new report assessing the price of gold.

A different relationship: In the early years of this bull market of 'gold, when it was clear that the direction of the dollar was down in an automatic gold dynamically considered himself upward. But now things have changed. In the last two years, gold has risen and when the greenback has gained, both when it was weakening as a result, you must take note that there is also another inverse relationship observed in the last two years in a consistent manner, that is, the relationship that exists between real interest rates and the price of gold Americans.

Investors in gold when they have to evaluate the price of gold for the opening of a position, tend to focus primarily on the relationship between the dollar and gold, on the assumption that a lower dollar automatically leads to an increase in the price of 'gold in U.S. dollars. While this may be true often proved to be true, in general, there is another relationship that does not get as much attention as it should deserve, and that is the relationship between the 'gold and real interest rates in the United States.

The basic principles underlying this inverse relationship is as follows: when the U.S. monetary policy is more flexible, real rates fall. Therefore, investors buy gold for a number of reasons:

1. Firstly, lower real rates could imply higher inflationary expectations in the future, so gold is bought to hedge against possible inflation.
2. Secondly, lower real yields of Treasuries push investors to seek assets with higher returns. This drives the price of gold, commodities and currencies higher.
3. Third, real yields lower temperatures reduce the demand for instruments denominated in U.S. dollars, causing the descent of the dollar and the consequent growth of the gold price in dollars. Finally, a looser monetary policy implies that the economic situation is not as rosy as many would like to believe, so if the Federal Reserve puts in place measures to ease monetary policy, driving down real interest rates, sending the message that the economy does not run well and therefore investors buy gold as a safe haven.

There are certainly many other reasons that explain this relationship but we have tried to analyze only the main ones.

Benefits: While this inverse relationship is not perfect, it has a theoretical advantage distinct from simply watch gold ratio dollar because both can be considered as a haven assets. Carlo Vallotto precious metals For example, if there were to be a crisis such as the recent sovereign debt in Europe, the money could be invested in gold in search of a safe haven, but also in dollars to escape the European issues. Investors may sell European stocks with higher yields and buy U.S. bonds with lower yields but more secure. This is then the case in which gold and dollar would both be on the increase, refuting their correlation generally negative. However, U.S. interest rates would decrease if investors from buying Treasuries as a safe haven and, therefore, the inverse relationship between gold prices and interest rates would confermata.Questo or is not to say that the inverse relationship between us dollar and gold prices is not a good system, but also evaluating the relationship between interest rates and the price of gold, you can get a better picture of the situation.