Gold And Real Interest Rates Are No Longer Correlated, BMO Says. What Now?

A new report by BMO Capital Markets suggests that the price of gold is no longer being driven by real interest rates. What replaced them? I unveil the answer below.

The American consumer did it again. Thanks in large part to a strong holiday shopping season, U.S. gross domestic product (GDP) expanded at a faster-than-anticipated 3.3% in the fourth quarter of 2023.

The results make the strongest case yet that the Federal Reserve has pulled off a soft landing, but they also raise questions about the timing of the central bank’s next move… and where investors should allocate their capital.

It certainly feels as if the economy has turned a new leaf, and the data appears to bear that out. At the end of last year, Fed Chair Jerome Powell’s dovish pivot ignited hopes that the days of sky-high interest rates were numbered. This was bolstered by the Federal Reserve Bank of New York’s Survey of Consumer Expectations, which shows that Americans’ inflation expectations have dropped to a two-year low. And the University of Michigan found that consumer sentiment jumped this month to its highest level since July 2021. In December and January, the good vibes saw a cumulative 29% increase, representing the biggest two-month gain since 1991.