Gold shines with falling real yields

This chart compares the real yield of 10 year Treasuries (bottom red) to XAUUSD (top). The real yield is the yield that a treasury buyer can expect to earn after inflation (nominal interest rate minus the inflation rate). At a glance there's visibly a strong negative correlation between real rates and the price of gold over time. Research by _Erb and Harvey showed a negative 82% correlation between real interest rates and gold prices from 1997 to 2012 (The Golden Dilemma).

The real yield on long term treasuries was over 3% in 2000 and fell to a negative yield in 2012-2013. During this period of time the price of gold gained over 600%. And in reverse from 2012 the real yield increased approximately 1% to 2015, while the price of gold fell almost 40% during this time.

Gold is relatively expensive when the real yield on treasuries is high, and relatively cheap when the real yield on treasuries is low. If an investor can gain a high real yield after inflation by holding a 'risk free' treasury, then the opportunity cost of holding gold is comparatively high. This makes gold relatively less attractive since gold pays neither dividend nor interest. Treasury investors lose money during negative interest rates (when inflation is greater than the nominal interest rate). This makes gold more attractive despite having no yield.