The Decreasing Correlation of Gold with Real Yields.
For a long time, gold price movement had a significant negative correlation with real yields. That is, when real yields move up, gold price moves down and vice versa. What are real yields? Real yields are nominal interest rates minus the rate of inflation. So, if your bank deposit pays 1% and inflation is 2% then your bank deposit rate of return is actually negative, and vice versa. So if real yield rises the gold you hold which doesn't pay any interest, falls. Real yields are measured by the US TIPS bonds (Treasury Inflation Protected Security). But Bhanu Baweja , Chief Strategist of UBS Investment Bank, recently put up a paper showing that gold price is becoming less sensitive (lower correlation) to real yields. Why? Because the world is becoming such a dangerous place that you won't be bothered about gold not yielding any interest payment. You are holding gold for security, a hedge against inflation, and a rise in gold price as fiat currency (not only USD, bu...