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Negative Interest Bonds vs. Real Interest Rate vs. Gold

jmski52jmski52 Posts: 22,305 ✭✭✭✭✭
Zero Hedge reports that German bonds are trending toward negative yields.

...This is your bond market on Fedroids...

Being a big proponent of following the Real Interest Rate (10yr bond yields minus the rate of inflation), I believe that this seems to indicate higher gold prices as long as inflation runs higher than zero.

Shadowstats - inflation charts

A zero coupon on "risk free" debt such as German Bonds or Treasuries means that safety trumps return. When you factor in any significant amount of inflation, it means that people are willing to watch their money disappear at a known rate, as long as it doesn't disappear all at once.

It also means that gold becomes more attractive in view of that inflation. The relationship between the Real Interest Rate and the price of gold has been well-documented.

I'm just sayin'.


Note - the maturity does affect the equation but unless the yield curve becomes inverted, the relationship still applies - although maybe to different degrees at different points along the yield curve.

Note the chart within:
Seeking Alpha - Gold's Critical Metric, Real Interest Rates
Q: Are You Printing Money? Bernanke: Not Literally

I knew it would happen.
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