Real rates: How exactly do you measure reality?

Bloomberg/John Authers/4-19-2022

“In times of inflation, real rather than nominal values grow far more important. How well has a price or return delivered for you, after taking inflation into account? In markets, it’s real rates that most matter. But how exactly do you measure reality?”

USAGOLD note: Authers verbalizes what a good many investors have been thinking. Is the manner in which the real rate of return is calculated – using “inflation expectations,” for example, rather than the inflation rate itself – an accurate measure of investment returns? The chart below shows the yawning gap between the headline inflation rate and the yield on 10-year Treasuries. The mainstream financial media often explain gold market sell-offs as a response to rising yields. In our view, it is quite the opposite. A considerable amount of gold demand comes from investors liquidating bonds and moving to gold as the last safe haven left standing in an increasingly inflationary environment.

10-year Treasury yield vs. the headline inflation rate

Chart courtesy of TradingView.com