Line chart compares the price of gold with the 10-year Treasury Inflation-Protected Securities (TIPS) yield.
Left y-axis: Gold price (U.S. dollars per ounce), right y-axis: 10-year TIPS yield (%, inverted); x-axis: 2016 – 2021
The price of gold opens the period near $1,061 per ounce, rises to roughly $1,337 by mid-2016 but falls to about $1,133 late that year. From that point, the price of gold fluctuates but rises above $1,325 in 2018. It then declines again, to just over $1,203 late that year, before beginning a long upward trend, reaching more than $2,035 in August 2020. By late December it had fallen to just over $1,883. By October 1, 2021, it had fallen again to about $1,753.
From 2016 to 2018 the 10-year TIPS yield fell from near 0.7% to a negative 0.09% by mid-2016. By late that year yield had increased to roughly its starting point, gradually increasing to over 1.1% by November 2018. Since 2018 yield of the 10-year TIPS had generally declined, reaching 0.01% in September 2019 and about -0.56% in March 2020. Near Q3 quarter end it stood at about -0.93%, by January 1, 2021, it was at about -1.09. improving to to -0.89% by October 1, 2021.
Generally speaking, as the price of gold has increased the TIPS 10-year yield has declined.
Sources: Bloomberg and Wells Fargo Investment Institute. Weekly data from January 1, 2016 to September 30, 2021. TIPS = Treasury Inflation-Protected Securities. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in physical commodities, such as gold, exposes a portfolio to other risk considerations such as potentially severe price fluctuations over short periods of time and storage costs that exceed the custodial and/or brokerage costs associated with a portfolio’s other holdings.
- Through 2019 and most of 2020, gold prices were driven higher by falling real interest rates and excessive global money printing.
- Gold prices began stalling in August 2020, however, as real interest rates stopped falling.
- We believe that gold prices will begin trending higher again in 2021 and 2022 as investors recognize that real interest rates should remain negative and as global money printing continues unabated.