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Chinese gold buying is driving a paradigm shift in bullion
By Eddie Spence and Yvonne Yue Li
Bloomberg News
via Yahoo News, Sunnyvale, California
Sunday, September 24, 2023
What determines the price of gold?
For much of the past decade the answer was easy: the price of money. The lower rates fell, the higher gold climbed, and vice versa.
Gold is the quintessential "anti-dollar" -- a place to turn for those who distrust fiat currency -- so it seemed natural that prices would rise in a world of low real interest rates and cheap dollars. Or when rates went up, gold, which pays no yield, naturally became less attractive, sending prices tumbling.
Well, not anymore.
... Dispatch continues below ...
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As inflation-adjusted rates soared this year to the highest since the financial crisis, bullion has barely blinked. Real yields -- measured by the 10-year Treasury inflation-protected securities, or TIPS -- jumped again on Thursday to the highest since 2009, while spot gold nudged down a mere 0.5% the same day. The last time real rates were this high, gold was about half the price.
The unraveling of the relationship between gold and real interest rates could be a paradigm shift for the precious metal, leaving investors struggling to calculate its "fair value" in a world where the old equations don’t seem to apply. It's also raising questions about if and when the old dynamic might reassert itself -- or whether it already has, just from a new base.
So what's holding prices up?
Analysts point to a combination of voracious central bank buying -- led by China -- and investors who are still betting a U.S. economic slowdown will be good for gold, even when the regular playbook says it's time to sell. ...
... For the remainder of the report:
https://finance.yahoo.com/news/chinese-gold-buying-driving-paradigm-081235805.html
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