Why real interest rates impact gold prices

Gold is used as an investment alternative. Investors think that it protects money’s purchasing power. As an investment, it has to compete against other investments that are available in the market. The interest rate is a big factor here because it determines the attractiveness of those investment alternatives.

What rising US real interest rates mean for gold investors

As real interest rates rise—interest rates adjusted for inflation—other investments usually become more attractive. This reduces the demand for gold and vice versa. Gold usually has an inverse relationship with real interest rates.

Tracking interest rates

To discuss US real interest rates, we’ll use the three-month Treasury bill rate minus the year-over-year change in the Consumer Price Index, or CPI. The CPI measures the price paid by consumers for a basket of consumer goods and services. The CPI data is released by the U.S. Bureau of Labor Statistics, or BLS, on a monthly basis.

US real interest rates are increasing

The three-month real interest rates are still negative. Meanwhile, they’ve started to increase because of falling inflation in the US. The CPI for December was 0.8% compared to 1.3% for November and 1.7% for October. The real interest rate was -0.76% for December compared to -1.29% for November and -1.69% for October.

Gold prices have an inverse relationship with real interest rates. As a result, rising real interest rates are negative for gold prices and gold-backed exchange-traded funds like the SPDR Gold Trust (GLD). Rising real interest rates are also negative for companies like Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), Kinross Gold (KGC), Yamana Gold (AUY), and other ETFs like the VanEck Vectors Gold Miners ETF (GDX). These companies combined contribute 32.6% toward GDX holdings.

In this scenario, investors can look at ETFs that invest in US Treasury bonds like the iShares Barclays 20+ Year Treasury Bond ETF (TLT).

Latest articles

21 May

Trump’s Huawei Ban Pulls Down US Chip Stocks

WRITTEN BY Scarlett Ness

Last week, Donald Trump blacklisted Chinese telecom giant Huawei Technologies amid rising US-China trade tensions.

21 May

Snap Is Making Up for Last Year


This year has been a great one for Snapchat parent Snap (SNAP), and its stock has nearly doubled.

Coca-Cola (KO) will offer a limited edition of its of New Coke cans beginning May 23 as part of its partnership with Netflix’s (NFLX) show Stranger Things.

21 May

Why Clorox Stock Is Underperforming Peers

WRITTEN BY Adrian Stevens

Clorox stock (CLX) is down about 8% since the company posted its third quarter of fiscal 2019 earnings on May 1.

21 May

What JD Is Set to Get from Its Xinning Deal

WRITTEN BY Rachel Gunter

JD.com (JD) recently invested ~$55 million in purchase a ~10% stake in Jiangsu Xinning Modern Logistics, a Chinese logistics company focusing on the consumer electronics supply chain.

Today, the US stock market was on a path of recovery after starting the week on a bearish note yesterday.