Real rates

What it measures

The yield on 10-year US Treasury Inflation-Protected Securities (TIPS), released daily by the Federal Reserve Board in the H.15 statistical release. Before TIPS existed, the pillar uses a proxy: the 10-year nominal Treasury yield (GS10) minus year-over-year headline CPI inflation.

Why it moves gold

Gold pays no coupon and no dividend. The opportunity cost of owning it is the real yield an investor gives up by not holding cash or short-duration Treasuries. Two decades of data through 2021 show a strong inverse co-movement between the real 10-year rate and the real gold price; the mechanism is documented in Erb and Harvey, and the co-movement is measured directly in central bank research.

Today's reading

Today the real-rates pillar reads 4/100, in a historically unfavorable range for a long-term buyer.

Notes: Lower real rates historically preceded better long-term gold returns (EVIDENCE-BASE.md §1). 2022+ regime break published separately.

How it is scored

The pillar is the percentile rank of the latest smoothed real yield within the full history of the indicator, then inverted so that lower yields map to higher sub-scores. The orientation is fixed by economic mechanism, not fit to gold returns.

Orientation. Lower or falling real yield = higher sub-score = conditions historically associated with better long-term forward returns.

Evidence

• In "The Golden Dilemma" (NBER WP 18706, 2013; FAJ 69(4)), Erb and Harvey report a -0.82 correlation between 10-year TIPS real yields and the real (inflation-adjusted) price of gold over 1997-2012, while cautioning that the relationship weakens to -0.31 on longer UK data and that correlation does not establish causation.
• The Chicago Fed Letter 464 (2021) documents that the inverse co-movement between real rates and gold is essentially absent before 2001. The pillar is regime-dependent; the relationship strengthens after 2001 and breaks temporarily in 2022 to 2024.
• RBC Wealth Management reports the R-squared between real rates and gold at 69% for 1997 to 2004, 84% for 2005 to 2021, 3% for 2022 to 2023, and 7% for 2024. JP Morgan Asset Management reports a similar figure moving from about 85% (1990 to 2021) to about 16% since 2022, with the beta itself flipping sign.
• The Gold Barometer own backtest, 1971 to present at monthly cadence, measures the correlation between the real-rates sub-score and the subsequent 12-month nominal gold return at +0.237 for 1971 to 2000, -0.368 for 2001 to 2021, and -0.804 for 2022 to 2024. The 1y predictive claim was empirically absent in a full-era measurement even before the 2022 break.

Caveat

Evidence grade: strong, with a documented 2022 regime break. The pillar is included because its economic mechanism is coherent and two decades of validity outweigh short breaks; the numbers on the break are published, not hidden.

Seller-side note

For a seller, falling real rates are a HOLDING tailwind, not a sell trigger. Rising real rates weaken the buy case but do not symmetrically create a sell case for a long-term holder who does not need dollars.

Source: Board of Governors of the Federal Reserve System (US), H.15. See the methodology page for the composite formula and the provenance page for the per-source status board.