The greatest divergence has perhaps occurred with German real yields and Gold/Euro with the real yield falling from +0.40% to -0.32% since December 2013. Assuming there has been no structural breakdown in the relationship, in each case we would expect that either the real yield will bottom-out and start to rise or the price of gold in local currency will rise to close the gap. However, absent an economic trigger to push real yields higher, in particular in the Eurozone which is currently battling strong disinflationary forces, we would expect that the more likely outcome would be for gold prices to be supported at current levels or perhaps move higher over the next few months.
Finally we note that in the Gold/yen chart real yield data is only shown from 2013 as prior to that date issuance had been suspended by the Japanese Ministry of Finance since 2008. We have nevertheless included the limited data as it does give some perspective on the significant fall in Japanese real yields (currently -0.70%) over the last year.
This article was written by Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR), AdvisorShares Gartman Gold/British Pound ETF (GGBP), AdvisorShares Gartman Gold/Yen ETF (GYEN) and AdvisorShares International Gold ETF (GLDE), share their thoughts about the gold space.