Editor’s note: Originally published at tsi-blog.com on Oct. 13, 2020.
I discussed the relationship between gold and inflation expectations a couple of times in blog posts last year (HERE and HERE). Contrary to popular opinion, gold tends to perform relatively poorly when inflation expectations are rising and relatively well when inflation expectations are falling.
The relationship is illustrated by the chart displayed below. The chart shows that over the past seven years, there has been a strong positive correlation between RINF, an ETF designed to move in the same direction as the expected CPI, and the commodity/gold ratio (the S&P Spot Commodity Index divided by the US$ gold price). In other words, the chart shows that a broad basket of commodities outperformed gold during periods when inflation expectations were rising and underperformed gold during periods when inflation expectations were falling.
This year, inflation expectations crashed during February-March in reaction to