Gold Glitters Out Of The 'Shadow'

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About: SPDR Gold Trust ETF (GLD), Includes: DGL, DGLD, DGP, DGZ, DZZ, GLDW, GLL, IAUF, UBG, UGL, UGLD
by: Massimo Guidolin
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Massimo Guidolin
Research analyst, long-term horizon, commodities, portfolio strategy
Summary

To obtain reliable forecasts of the price of gold, we propose to move the focus from a traditional "real rate view" to an overall monetary-policy-stance perspective.

Recent contributions in applied monetary policy analysis have shown the usefulness of shadow, or implicit, rate indicators of the stance of monetary policy.

The shadow short rate is equal to the policy rate in non-lower-bound/conventional monetary-policy environments, but it can freely evolve to negative values in lower-bound/unconventional environments.

When we purge the data of the effects of the strong U.S. dollar, 2014-2017 turns out to have been an exceptional period in which gold appreciated while real interest rates climbed and monetary policy went through a tightening cycle.

Gold prices can be expected to resume on an even stronger appreciation path because since early 2019, shadow short-term rate indicators have signaled a significant monetary policy easing in the U.S. and worldwide.

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