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stelios

926 Posts.

152

04/11/21

18:01

Post #: 57323558
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Originally posted by stelios: ↑

I am responding your reply to our resident know all Skol.
Your reply:
"The gold price correlates with the inverse of the real interest rate DH."
My response: Agree, he is also telling us that the US Economy is deflating by 0.7%
Special Consideration
It’s feasible for real interest rates to be in negative territory if the inflation rate exceeds the nominal rate of an investment. For example, a bond with a 3% nominal rate will have a real interest rate of -1%, if the inflation rate is 4%. A comparison of real and nominal interest rates can be calculated using this equation:

RR=Nominal Interest Rate − Inflation Ratewhere:RR = Real Rate of Return

RR=Nominal Interest Rate − Inflation Ratewhere:RR = Real Rate of Return
Inflation Rate =Nominal Interest Rate - RR
Inflation Rate = 3% - (-1% ) = 3% + 1% = 4% $\begin{aligned} &\text{RR}=\text{Nominal Interest Rate }-\text{ Inflation Rate}\\ &\textbf{where:}\\ &\text{RR = Real Rate of Return}\\ \end{aligned}$
Say 10 year bond yield = 1.6%
According to Skol 's bar chart Real Rates are 2.3%
Inflation Rate% = 1.6% -2.3% = -0.7%
RR = 1.6% - (- 0.7%) = 1.6% +0.7% = 2.3%

Inflation Rate = 3% - (-1% ) = 3% + 1% = 4%

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Try Again

e − Inflation Ratewhere:

Last edited by stelios: 04/11/21
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0 Great analysis

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