In this Metals Watch, we revisit the theoretical relationship between the price of gold and inflation, before assessing how this relationship has held up throughout history. The key takeaway is that although gold is an effective long-term hedge against inflation, its effectiveness at shorter horizons depends on how long-term expectations for inflation and monetary policy evolve. We think that long-dated real yields will rise somewhat over the next few years, which should be enough to pull down the gold price.
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