The price of gold reached a new record high of $4,381 per troy ounce in mid-October. Since then, the price has fallen significantly, but is still up almost 60 percent since the beginning of the year. The price increase occurred in two major spurts: between January and the end of April, gold recorded an increase of 25 percent. The price then stabilized at around US$3,300 per troy ounce. The most recent increase began at the end of August and peaked at almost 30 percent.
Real interest rates are no longer the key driver…
In the past, the outlook for US real returns has proven to be an important driver of the gold price. Since gold does not pay any interest but is considered “risk-free,” it primarily competes with other risk-free interest-bearing investments, especially US government bonds. If interest rates rise in the USA and thus (real) yields, the price of gold usually falls because investments in the precious metal become less attractive. The other way around: If interest rates fall and/or inflation rises, the real return also falls, making gold investments more worthwhile again.