When the Real Rates Have Been This High, the Winner Is Gold

Highlights

  • Regime: Checking in on the bull market
  • Macro: Inflation cools, but when will the dollar?
  • Valuation: A modest 9% premium for a high quality asset
  • Flows: Investors sell gold, central banks buy it

REGIME — GOLD BULL MARKET

  1. Short-term real interest rates are below 1.8%. TRUE
  2. The gold price, measured in a basket of currencies is rising, measured by a 35-month exponential moving average. TRUE
  3. The gold price relative to the S&P 500, measured by a 35-month exponential. CLOSE

Cheap money

Source: Bloomberg

Why the US dollar has surged

Source: Bloomberg

Gold is strong by most measures

Source: Bloomberg

Gold neutral versus US equities

Source: Bloomberg

Gold strong versus the world ex-US

Source: Bloomberg

S&P Returns vs US 30-year bonds

Source: Bloomberg

MACRO

UK inflation expectations retreat from panic levels

Source: Bloomberg

Also seen in France

Source: Bloomberg

Energy beats metals

Source: Bloomberg

Inflation softens when you strip out last September

Source: Bloomberg

VALUATION

Source: ByteTree Terminal. ByteTree Gold Fair Value (green) and price (blue), since 2018.

Rates rise + inflation cools = real rates surge

Source: Bloomberg

The great rallies started from a high in real rates

Source: Bloomberg

Gold valuation scenarios (present highlighted)

For the bears

For the bulls

FLOWS

Gold investor outflows persist

Source: ByteTree Terminal. Gold held by funds (oz, in green) and price (USD, in blue), since 2015.

Don’t bet against the central banks

Source: Bloomberg

SUMMARY

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