“Obviously, rising gold prices must reflect some concerns about rising inflation, which would increase the demand for TIPS. This year’s break in the gold price suggests that inflationary expectations are coming down, and so is the demand for TIPS,” Yardeni wrote.
With TIPS, the principal is linked to changes in the CPI. However, the bonds are also sensitive to interest rates just like regular Treasuries. Therefore, TIPS can lose value when Treasury yields rise. Like right now.
For TIPS ETF investors, the inflation “breakeven rate” is important to monitor. It is determined by comparing the yields of regulator government bonds against inflation-protected securities of the same durations. If inflation averages more than the breakeven rate over a given time period, then investors would be better off owning TIPS than normal Treasury bonds.
iShares TIPS Bond ETF
Full disclosure: Tom Lydon’s clients own TIP.