What are the keystones of gold prices?
Albert Estruch Gestor de Mercados
Gold prices depend largely on the trend in real interest rates in the USA, i.e. nominal rates minus inflation. The graph compares gold (blue) with the real 5-year interest rate in the USA (orange, on an inverted scale). The lower the real interest rate, the higher the price of gold.
Real interest rates (in orange), in turn, are moving almost on a par with nominal rates (in blue). However, their performance begins to differ (and even becomes the inverse) when there are deflationary pressures (end of 2008, after the Lehman Bros. bankruptcy and since the middle of 2015).
In the long term, gold prices (denominated in USD) represent the total value of the money supply in the USA. The higher the money supply, the higher the prices for a set amount of gold. The factor that would trigger off a price reversion would be a sharp fall in real interest rates in the USA. Based on this indicator, the long-term capacity is very high. (In orange gold price and in grey, real interest rate).
Gold has two particular risks: A significant hike in the rates delivered by US sovereign debt (this should be limited in the long term due to expected economic growth being below its past average), or a significant intensification in deflationary pressures (which we think could happen sometime in 2017 or 2018, which could temporarily have a highly negative effect on gold prices).
Real interest rates (in orange), in turn, are moving almost on a par with nominal rates (in blue). However, their performance begins to differ (and even becomes the inverse) when there are deflationary pressures (end of 2008, after the Lehman Bros. bankruptcy and since the middle of 2015).
In the long term, gold prices (denominated in USD) represent the total value of the money supply in the USA. The higher the money supply, the higher the prices for a set amount of gold. The factor that would trigger off a price reversion would be a sharp fall in real interest rates in the USA. Based on this indicator, the long-term capacity is very high. (In orange gold price and in grey, real interest rate).
Gold has two particular risks: A significant hike in the rates delivered by US sovereign debt (this should be limited in the long term due to expected economic growth being below its past average), or a significant intensification in deflationary pressures (which we think could happen sometime in 2017 or 2018, which could temporarily have a highly negative effect on gold prices).
