The Relationship Between the Price of Gold and the 10-Year TIPS Yield and Why it Matters

The change in this historical relationship has prompted some to ask, where do things go from here?

While it’s not clear if the two trend lines will realign, there are several reasons to believe that the price of gold could remain high. One such reason is that the gold market was very short. In other words, many investors held positions that stood to gain if gold prices fell. As the price of gold resisted that expectation, those same investors were forced to cover their positions. As a result, short positions recently dropped by 31,096 contracts to 89,605. In fact, this was the second-biggest ever short-covering rally on record.

Additionally, heightened levels of gold purchasing in China have led to a dramatic premium over international prices. In some cases, this premium was over $100 per ounce. This surging demand stems from falling property values, a major store of value for many Chinese citizens. The declining yuan has likely also contributed to increased gold purchases.

The key takeaway for investors is that the power of gold to serve as a safe haven in periods of instability and uncertainty is strong enough to break a decade-and-a-half trend that would normally see gold declining in price today.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world, and the latest tangible assets news delivered to your inbox weekly.