We suspect that the reduced liquidity of inflation-protected Treasuries vis-à-vis their conventional counterparts is one reason why the price of gold has not fallen as much as might have been expected in the face of a surge in long-dated TIPS yields. Admittedly, the price still appears a bit high when we control for this factor. And there is little evidence to support the claim that the “fair” value of gold has risen in response to changes in supply and demand. But we doubt that the price will end this year far from its level now of ~1,650/oz. and suspect that it will rise a bit in 2023 as TIPS yields come back down.
In view of the wider interest, we are also sending this Asset Allocation Update to clients of our Metals Service.
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