Looks like Gold is poised to shine the brightest!!!

Real Rate of Return in simple language is:

• Interest Rate – Inflation
• If bank fixed deposit is paying 6% interest rate & inflation is 7%, the real return is 6% – 7% = -1%
• If inflation is 4%, your real return is 6% – 4% = 2%

1. Negative Real Rates (-1% in the above example) is supportive of gold prices
2. Positive Real Rates (2% in the above example) works against gold prices

• Gold is a non interest-baring instrument i.e. does not pay any fixed interest.
• Hence, whenever rates drop, you make less fixed interest by investing incremental money in fixed income & hence it moves to Gold & When rates go up, you want to invest incremental money in Fixed income & not gold
• Hence, assuming inflation to be constant, you will invest more in Gold when Interest rate falls to 4% & inflation is 6% = -2% real rate and you will invest less in Gold when interest rate rises to 7% & inflation is 6% = 1% real rate
• Positive Real Rates (2% in the above example) works against gold prices

Yes. Gold is traded in $ terms. When $ increases/ strengthens, gold becomes expensive & hence demand is expected to fall & hence the price comes down. But when $ drops/ weakens, gold becomes cheap & hence demand is expected to rise & hence the price is expected to go up.

• Globally interest rates are expected to top out. Market is expecting rates rate cuts starting middle of 2024; & hence fixed income investors would lean more towards Gold as against fixed income assets
• When interest rates go down, the currency (Dollar in this case) is expected to soften as well. With this view, the expectation also is that softening dollar will be positive for gold.