Gold: Lift-off has come mainly from the massive decline in real rates – NBF

Matthieu Arseneau, analyst at National Bank Financial, points out that gold prices have increased by 15% since this year’s trough (May 2nd) and the lift-off has come mainly from the massive decline in real rates.

Key Quotes

“The opportunity cost of holding gold declined drastically with real rates on a 10 year horizon close to zero. We also note that all drivers pushed gold higher over the past three months, an unusual development. The recent price increase should not curb the appetite for this yellow metal for those who believe that stress has just started to mount. Indeed, stress remains contained for now if corporate credit spreads and VIX are any guide.”

“All else being equal, if both indicators return to their peaks reached 8 months ago, this could mean a further 110$ appreciation in gold. However, if you instead believe that these fears are exaggerated, it could be time to lock in some profits as our model suggests that the recent liftoff may have been overdone. Indeed, no less than 53$ of the $190 increase cannot be explained by the usual drivers.”