Will Trump Impact Gold?

At Bloomberg, Luke Kawa looks at “Trumpflation.”

Eddy Elfenbein, portfolio manager at AdvisorShares Investments LLC and founder of Crossing Wall Street, has built a model predicting where gold prices will go based on the deviation of short-term real interest rates from their natural level. The Globe and Mail’s Scott Barlow has also explained the relationship between the two assets on a number of occasions.

The thinking here is that the value of a hard asset with a yield of zero (net of storage costs) will be affected by the relative real yield on assets that are considered risk free, an alternative holding. In other words, the so-called opportunity cost of buying gold rises as real Treasury yields increase.

So if you want to know how the president-elect is changing the outlook for gold, looking at inflation-protected Treasury yields instead might prove more useful than searching for nascent signs of Trumpflation.

Posted by on November 28th, 2016 at 9:41 am

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