What’s the Future for Gold?

I took the current TIPs yield curve and plugged it into my Gold Model to see what the future may hold for gold:

Now let me add several major caveats.

This is not in any way my forecast for where gold will go. The model I made is just that, a model. Or more specifically, it’s a model of how a better model might look.

As to the specific constants I used (eight for leverage and 2% for equilibrium), those are just working estimates. If those numbers are changed even slightly, the chart above looks very different.

Of course, the numbers can also lead to an entirely different conclusion: that TIPs are far too high. (A real return of 0% for six years? No thank you!)

We should also bear in mind that estimates for the future based on what we know today are notoriously poor. In 1999, the TIP that was maturing in 2002 was showing a real yield of 3.5% to 4%.

The real takeaway is that the market thinks real rates will remained subdued for a long time. It won’t be another 10 years until real rates get back to normal.

Posted by Eddy on October 10th, 2010 at 10:44 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.