Typically, the relationship between gold prices and real interest rates are like magnets with the same polarity – they drive each other the other way. For instance, according to the Elfenbein Gold Model, “whenever the dollar’s real short-term interest rate is below 2%, gold rallies, and whenever the real short-term rate is above 2%, the price of gold falls.”
However, as Resource Investor points out, this relationship may not be quite so simple…or predictable. So investors be warned:
The nature of gold is much more complex than any other commodity, so searching for one ultimate factor determining its price, gold’s Holy Grail, will always result in failure. Because a lot of factors affect its price, investors should beware of simple models and study history to test popular opinion.
See resourceinvestor.com for the full story and a list of reasons why gold and interest rates are so interconnected.