Markets News & Opinions

Gold Price Poised for 16% Yearly Gain as Real Interest Rates Plunge

2019 was the year gold finally broke out of its dismal trading range. 2020 offers the same upside as real interest rates fall.

  • Despite a quarter-long correction, gold’s price is tracking yearly gains of around 16%.
  • The primary driver for gold’s bull market continues to be real interest rates.
  • 2019’s major macro trends are set to continue next year.

The price of gold has languished for the better part of four months, as technical resistance and the return of risk appetite undercut demand for the traditional haven asset. But if 2020 is anything like this past year, bullion’s breakout performance is set to continue.

As I’ve written before, the key to gold’s continued success is real interest rates.

2019: A Breakout Year for Gold

To say that 2019 was a breakout year for gold would be an understatement. Geopolitics, trade uncertainty and an aggressive stimulus push by global central banks aided gold’s ascent to fresh six-year highs.

Beyond these immediate catalyst, one only has to look to real interest rates to get the full picture. Interest rates have not only fallen in a nominal sense, they’ve barely kept up with inflation.

The yield on the benchmark 10-year U.S. Treasury yield, which moves inversely to price, hit three-year lows during the summer. A partial recovery still puts yields nearly one full percentage point below year-ago levels.

The benchmark 10-year U.S. Treasury yield has recovered over the past quarter but is down markedly over the past year. | Chart: CNBC

In the 12 months through September, the 10-year Treasury yield plunged from 3.20% all the way down to 1.44%. Over the same stretch, spot gold rallied from around $1,175 a troy ounce to $1,572. At its peak, bullion was up 22.6% for the year. After a massive correction, the yellow metal is still up more than 16% for 2019.

Gold has corrected from September’s six-year high but remains on track for hefty returns in 2019. | Chart:

2020: More of the Same

The macro trends that emerged in 2019 – a weakening global economy, central bank easing, negative bond yields and U.S.-China trade uncertainty – will remain on the docket for 2020. In theory, gold should have plenty of runway to make further gains.

Unlike bitcoin, which has yet to fully price in global turmoil, gold seems to respond favorably to market risks. With the Federal Reserve blowing the lid on the next financial crisis, activity in the overnight repo market will be on investors’ radar for the foreseeable future. If the Fed’s overnight liquidity operations morph into full-blown quantitative easing, it’s safe to say policymakers are no longer afraid of inflation. (Gold regains its shine during periods of inflation.)

Higher inflation, even by the Fed’s own flawed metric, will only push real interest rates lower and make bullion a more attractive option for investors. As Kitco recently pointed out, mainstream economists aren’t respecting the possibility of an inflation scare in the not-too-distant future.

In an interview with Kitco, Bannockburn strategist Marc Chandler said:

People aren’t talking about inflation. They think that topic is dead, but there are signs that it is picking up. I think we see an inflation scare in 2020. The threat will rise before inflation actually does.

Gold Price Update

Bullion saw limited upside on Thursday, as investors dissected lukewarm economic data on housing and unemployment.

Gold for February settlement peaked at $1,485.80 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract was last up $5.00, or 0.3%, at $1,483.70 an ounce.

The yellow metal is on track to break even for the week but has fully recovered from an early December slump that dragged prices all the way down to $1,465.

Silver followed a similar trajectory as gold, as the futures price climbed 10 cents, or 0.6%, to hit $17.15 an ounce.

Last modified: March 4, 2021 2:40 PM

Sam Bourgi

Financial Editor of, Sam Bourgi has spent the past decade focused on economics, markets, and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance, and Forbes. Sam is based in Ontario, Canada and can be contacted at or at LinkedIn.