If you’re a gold investor and you had to look at just one piece of information to decide when to buy sell or hold. well, that would be a bad idea. There’s no magic bullet to decide when to buy sell or hold, and even if there was it would likely be different for each person, because individuals have different investment needs.
So there’s no one-size-fits all gold advice I can give you. Sorry about that.
But, if you’re like me, and you’re not a day-trader, you don’t foresee any major life-changes in the near future that might require you to liquidate your gold at a moment’s notice, and you’d like to know the single most important piece of information regarding when to buy, sell and hold your gold – then read on.
This single metric is not an oracle’s stone. It’s not perfect. It’s not going to guarantee that you’ll reap the biggest possible rewards from your gold holdings.
But it will help you keep your head on straight, and it will help you find true-north in these uncertain times.
Here’s the quick version:
When the inflation rate is HIGHER than the two year Treasury yield, you should be buying or holding gold.
When typically "safe" investments like Treasuries are a net-loss after inflation, there’s really no place for money to go besides real assets.
Sure, some money will flood into securities like stocks and corporate bonds.
Some will fly into alternate currencies.
But a chunk of it will fly to the safety and security of gold.
And it won’t leave until interest rates start to far exceed the real inflation rate.
The tricky part of this rule of thumb is the "real" inflation rate – because the Core Price Inflation rate published by the Federal Government almost always understates real inflation.
And we know why: lower published CPI lets the Government keep costs down. No cost of living increases for folks on Social Security. Small increases for Medicare payments, etc.
Also, the Government always seems to keep the CPI under the 1-2 year Treasury notes that it sells.
If it didn’t, why would anyone ever buy these Treasury issuances?
It would be a straight-faced admission that Treasuries are a guaranteed money-loser.
Take note that high interest rates don’t necessarily mean it’s time to sell your gold.
We can look back to the late 1970s and see that even though rates hit the double digits, gold prices didn’t start to fall until 1981 – when Treasury yields finally started to outpace real inflation.
So where do you get "real" inflation rates?
I’m a fan of shadowstats.com.
I know the website name sounds like some kind of conspiracy theory website, but they honestly do some good work. Take a look at this free primer on why CPI understates inflation.
So, I’d use the Shadow Stats numbers as a rough guide post to see what the real inflation numbers are, and then just look up the 2 year Treasury note yield on the US Treasury website.
Right now, Shadow Stats shows that real inflation is closer to 10%. But right now, the 2 year Treasury yields just 0.37%.
Until that Treasury yield over-takes real inflation, I think we’ll see gold prices only surge higher.