Real Interest Rates Over the Years
There’s an interview piece coming out at Seeking Alpha sometime in the next few days on the subject of “Positioning for 2013″ and, during the discussion, the subject of inflation and real interest rates in relation to the gold price came up. Here’s a chart that explains much of the current gold bull market:
As should be clear from above, it’s not the absolute level of inflation or interest rates that really matters - it’s the relative level of the two. It just so happens that average real interest rates over the last ten years have been almost exactly the same as they were in the mid- to late-1970s - about -1 percent - that culminated with the spectacular blow off top in early 1980 under Fed Chairman Paul Volcker. The gold price then declined for the next 20 years while real interest rates were positive, averaging about 4 percent.