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U.S. bond yields may hold the key to the future of gold prices.

The fastest route to a brawl in a King and Bay pub is to start a discussion about the fair value of gold. The gold price, unlike stocks, can't be measured by cash flow or earnings multiples, which frees everyone up to have strong opinions without the limitations of a lot of pesky hard data.

The only consistent relationship underpinning the gold price – and by consistent, I mean "usually works over the medium term but not quite enough to bet the farm on" – is its inverse relationship with the U.S. dollar.

U.S. bond yields have a big, though not conclusive, effect on the U.S. exchange rate, so it's no surprise that sharp swings in yields are often accompanied by big moves in bullion.

We are at one of those periods where changes in yields are closely followed by an equivalent move in gold (see chart). The trailing 12 month daily correlation between ten year yields and gold has jumped to -0.68 from negligible at the beginning of the year. Whenever ten-year yields rise, gold falls and the reverse case has also held.

This will lasts as long as it lasts – the intensity of the connection between gold and yields waxes and wanes. For now however, investors (or prospective investors) in precious metals should pay close attention to the bond market.

The possibility that U.S. yields have overshot to the upside makes trend all the more interesting. If yields continue to fall in the wake of Chairman Bernanke's reassurances about QE, gold could stage a significant rebound.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .

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