Chart of the Month: Gold Prices Soar as Real Interest Rates Plunge into Negative Territory
Source: Federal Reserve Bank of St. Louis
Gold has been in focus this year, as central banks and government officials have unleashed an unprecedented amount of fiscal and monetary stimulus to stem the economic damage caused by the coronavirus pandemic. With real interest rates (e.g., the difference between nominal interest rates and inflation) falling to record lows this year, it is no surprise that demand for gold has soared considering the historically strong relationship between the two asset classes. Investors tend to view gold, and other precious metals, as a safe-haven investment during times of crisis. Gold is also rising because some market participants are concerned that massive spending from global governments and central banks will ultimately lead to inflation. With fiscal deficits exploding, interest rates near all-time lows, and inflation-adjusted returns on bonds negative, the safe-haven demand for gold as a store of value during these uncertain times will likely continue.
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