The "Real" Reason Behind The Rally In Gold

Real interest rates declined sharply on the week, providing a tailwind to both gold and silver.

This week, the shorter end of the Treasury curve plunged with 6-month rates dropping 13bps. Longer-dated Treasury bonds such as 30-year yields were flat on the week.

Weekly Change in Treasury
Weekly change in US Treasury yields.

If we look at the breakdown of Treasury rates this week, we can see that nominal rates declined even though inflation expectations (due to the oil spike) popped. The result was a large drop in real interest rates which drove precious metals higher.

Weekly Change in Treasury rates breakdown
Weekly change in US Treasury rates breakdown.

Gold and silver loved the decline in real interest rates and both jumped sharply on the week. Gold is more of a pure play on real interest rates relative to silver which carries an industrial demand component that gold does not have.

Gold
Gold ETF: GLD | Silver ETF: SLV

This excerpt was taken from the [Weekend Dashboard] report. This note is sent out to members of EPB Macro Research each weekend. To read the full report, click the link below.

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