Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
“Gold prices typically move in the opposite direction to interest rates, showing an average correlation on a 52-week basis of minus 0.44 since 2003 with inflation-adjusted 5-year US bond yields,” according to BullionVault. “Over the last 52 weeks however, gold’s co-movement with real rates has flipped to a correlation of +0.43 on BullionVault’s analysis today – the strongest positive connection since the end of 2006, when US home prices began to turn south, destroying sub-prime mortgage bond investments and –helping spur the global financial crisis of 2007-2012.”
For the week ended March 22nd, investors added $522.38 million to GLD, the third-best total among all US-listed ETFs.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.