DEZ
Relation:Gold and Long Term Interest Rates
As a result, huge and sustained moves in the price of gold require either 1) worldwide inflation, or 2) a plunging U.S. dollar. Unquestionably, rising inflation - particularly worldwide inflation, is a plus for gold prices, but the real action comes when inflation rates are rising worldwide and the dollar is under pressure.
Hands down, the main factor that moves the dollar is not the action of inflation itself,
but the action of long-term real interest rates
(long term interest rates minus long term inflation expectations, which can be very roughly proxied by the current inflation rate, since inflation is "serially correlated").
When long-term real interest rates are trending down (relative to long-term real interest rates in other countries), the dollar typically declines.
When long-term real interest rates are trending up, the dollar typically rallies.
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