You're Going To Shake Your Head When You See Why Everyone's Gotten So Bearish On Gold

Some of the bearish calls we've heard on gold lately are closely tied to the outlook for real interest rates. The idea is that as real interest rates begin to normalize from ultra-low levels, gold will underperform.

The inverse correlation between the price of gold and the interest rate on 5-year TIPS (Treasury Inflation-Protected Securities), for example, is fairly tight, as the chart below shows.

Yet, when one examines the chart, as @Dutch_Book pointed out on Twitter, while the initial sell-off in gold that started in November correlated with a slight backup in real yields, it's definitely starting to appear overdone.

Since then, gold has continued to tumble, even though real yields reversed course and kept heading lower.

If the gold bears are expecting normalized real yields to keep sending gold lower, we'll have to start seeing some economic data that would actually cause real yields to normalize.