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Education

Understanding Gold Prices

While many factors influence the price of gold, PIMCO believes there is one that can explain the majority of changes in gold prices over the recent history: changes in real yields.
Summary
  • With the launch of gold Exchange Traded Funds (ETFs) in the United States in 2004, gold has now become a liquid financial asset.
  • Several factors influence gold prices, including inflation, interest rates, market sentiment, as well as supply and demand.
  • PIMCO believes changes in real (inflation-adjusted) yields have been the most significant drivers of gold prices over the past couple of decades.
  • For investors, understanding the relationship between gold prices and real yields can help them assess the role of gold in their portfolios.
  • Amid macroeconomic and geopolitical uncertainties, investors may be well served by staying diversified and allocating to assets, such as gold, that have the potential to mitigate idiosyncratic risks.
Figure 1: Gold prices are heavily influenced by 10-year real yields. The line chart shows the logarithm of inflation-adjusted gold prices on the left hand scale in blue and 10-year real yields on the right hand scale. The chart shows that over the last 20 years, gold prices have generally moved closely with 10-year real yields.
Figure 1: Gold prices are heavily influenced by 10-year real yields.

As of 30 April 2024

Source: Bloomberg, PIMCO data

Figure 2: Movements of real-yield-adjusted gold prices versus spot prices. The line chart shows gold spot prices (blue line) on the left hand scale in today’s dollars, and real yield-adjusted gold prices (green line) in today’s dollars. Gold prices have generally tracked real-yield adjusted gold prices in the last 20 years.
Figure 2: Movements of real-yield-adjusted gold prices versus spot prices.

As of 30 April 2024

Source: Bloomberg, PIMCO data

What’s Behind Gold’s Appeal?
  • Gold is considered a durable store of value and a hedge against inflation.
  • Gold tends to rise during periods of high inflation, as well as economic and geopolitical uncertainty.
  • Gold reached nearly $2,075/ounce (in non-inflation-adjusted terms) in 2020 as the COVID-19 pandemic spread and spiked again above $2,000/ounce during the onset of the war in Ukraine. In 2024, gold reached an all-time high of over $2,200/ounce (in non-inflation-adjusted terms), driven by sticky central banks buying.

Disclosures

Unless stated otherwise, information contained herein is as of 30 April 2024. The information may be stale and should not be relied upon.

Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be appropriate for all investors.

There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No representation is being made that any account, investment product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Investors should consult their investment professional prior to making an investment decision.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.

CMR2024-0625-3665503

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