The Bond Market Is Saying Gold At $1,800 Looks Like A Bargain

The Bond Market Is Saying Gold At $1,800 Looks Like A Bargain
Andrew Rummer

about 3 years ago1 min

Gold might represent a good buy after dropping more than 10% from its August high – assuming the metal’s historical relationship with the US bond market holds true. 

The yellow line on the chart shows the price of gold over the past three years. The blue line is a little more complicated: that’s the yield on 10-year US government bonds, accounting for inflation. We’ve inverted the scale for this so-called real Treasury yield, because gold tends to climb as it falls. 

This makes intuitive sense: gold is an investment that pays out no income. So as real US bond yields become more and more negative, the relative appeal of the metal’s zero yield grows. 

In recent months, however, gold has steadily declined, breaking this trend – notice how the two lines have grown apart since November. The bond market might be signalling that gold is due for a rally. 

(Data source: Bloomberg)

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