Investment Clock insights

All that glitters....

Trevor Greetham

21 July 2015

The gold price is making new five year lows but we expect weakness to persist.

Gold tends to do well when the dollar is weak, real interest rates are negative and there are fears about systemic risk.

Today we see the opposite conditions, in what amounts to a perfect storm for gold.

  1. The dollar is strong with the Federal Reserve (Fed) likely to be first among the major central banks to raise interest rates (chart 1, dollar index shown inverted)
  2. Real interest rates in the US bond market are turning positive (chart 2, Treasury Inflation Protected Securities (TIPS) real yield shown inverted)
  3. Systemic risk is low with fears over hyperinflation at the time of the initial central bank Quantitative Easing (QE) programmes gone and the euro holding together

Perhaps the fact Greece is staying in the euro was the last straw for some retail holders of gold.

Gold price and US dollar index

Gold and US interest rates

The value of your investment and the income from it is not guaranteed and can fall as well as rise. This article is for professional customers only. The views expressed are the author’s own and do not constitute investment advice.