Why gold price move ?
Why gold price move It is said that gold is an Inflation hedge. Whenever Inflation goes up, Gold prices go up. But if you look at the historical data points, Gold has not really been able to live upto the expectations. (Q1) What really moves gold prices? It’s not just inflation but a combination of Inflation & Interest Rates that moves Gold prices. Real Rate of Return like we call it moves the gold prices. (Q2) What is a real rate of return? Real Rate of Return in simple language is, Interest Rate – Inflation. If bank FD is paying you 5% & inflation is 6%, your real return is 5% - 6% = -1% & if inflation is 3%, your real return is 5% - 3% = 2% (Q3) What’s the relationship between real rates & gold prices? (a) Negative Real Rates (-1% in the above example) is supportive of gold prices (b) Positive Real Rates (2% in the above example) works against gold prices (Q4) Why? (a) Gold is a non interest-baring instrument i.e. does not pay any fixed interest. (b) Hence, whenever