Negative Real Rates Underpin gold

From Reuters:  With yields on U.S. deposits already below the rate of inflation, gold would remain a solid alternative to the dollar whether the Federal Reserve merely pared interest rates this week or slashed aggressively to prevent an overall decline in prices, analysts said.  “The more aggressive cut, I would think, gold would react more positively to, since it would tend to be more negative to the dollar than 25 basis points,” said David Rinehimer, head of commodities research at Citigroup Global Markets. “What’s helped the dollar recently and been limiting for gold is the economic data coming out has been more better-than-expected than worse-than-expected,” he said.

In a recent mining and precious metals note Citigroup said that given bank deposit, CD and money market rates in the 1.2 percent to 1.6 percent range before taxes, “very low to negative real interest rates increase the relative appeal of holding gold, particularly considering its portfolio and currency insurance characteristics.”