Real Interest Rates and Gold

Some might have an issue with an earlier post that shows the relationship between nominal interest rates and gold.  So here is a chart showing real interest rates and gold.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The blue line is real interest rates and the red is the price of gold. As hard as I look at that, for just the 10 years shown, I cannot see a consistent relationship as some years rates were falling and gold was rising.  Other years, rates were rising and gold was rising.

 

 

 

 

 

 

 

 

 

 

 

 

Here’s another chart:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I can see that these two lines are generally correlated but are they predictive?

The great money manager, Peter Lynch, attributed much investing success to the correlation between earnings and stock prices.  But if you have ever invested in stocks, you know two things about that correlation:

  • it is correct in the long run
  • you can go broke in the short run relying on it

Therefore, this author just urges caution to any investor seeking simplistic relationships that don’t hold over time.  Sometimes low interest rates seem to be the major influence of a rising gold price but we have had plenty of times when both rates and gold rose together.