Gold tends to rally when real interest rates are declining. Gold does very well when real interest rates are negative. Gold declines when real interest rates are rising. Today, with 10y Treasuries yielding just 1.45%, and inflation expectations in the 1.5-2% range (and rising), we are in the sweet spot for gold.
If the Fed tapers QE, and raises short-term interest rates, and does this aggressively enough so 10y treasury yield stays higher than the inflation rate, gold will do poorly.
But…will they? The Fed has signaled continued QE through 2021. 2022 is an election year. I doubt they strangle the economy in an election year. So we will have more QE, more deficits, till the Fed is forced, too late, to take inflation seriously. Late 2022. Party on till then.
Disclosure: long nem, paas, some smaller miners. |
