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The future for bond yields is the future for gold

The ongoing rally in U.S. bond markets has been very good to gold investors in 2014. The U.S. inflation-adjusted 10-year bond yield has declined by roughly a third to 0.52 basis points and, true to form, the bullion price has jumped $147 (U.S.) or 12.2 per cent.

The trend has been consistent in the post-crisis era – the bullion price has moved in the opposite direction to real U.S. interest rates. When real rates rise, investors have sold gold investments and bought bonds, taking advantage of the higher yields and pushing the value of the U.S. dollar higher. The process is reversed when real rates fall.