Gold’s trying to tell us something.

As you might’ve noticed, bullion hit records above $2,500 this month, as expectations for Fed easing fanned a rally that already had the yellow metal up nearly 20% in 2024.

Gold is, of course, just an inverse real yields play. It has no internal rate of return, so the higher (or lower) inflation-adjusted yields are on riskless USD cash are, the less (more) attractive gold is.

That relationship, while intuitive and generally tight, doesn’t always hold. Or perhaps it’s more accurate to say that from time to time, other factors intervene such that gold isn’t beholden to US reals. Earlier this year, for example, gold rallied despite elevated real rates, presumably on foreign central bank buying tied to concerns around the weaponization of the US financial system in the presence of adverse geopolitical developments.

If you pan all the way out as I do in the figure below, gold at $2,500 looks completely disconnected from 10-year US reals at 1.70%.

In short: Gold “should” be much cheaper, US reals much lower or some combination of the two.

Again, I’m assuming a rule of thumb which says that, with allowances and caveats for any number of intervening forces, there should be some relationship between the inflation-adjusted, risk-free yield and the price of barbarous relics.

BofA recently noted that gold is the only asset to outperform US tech shares in 2024, no small feat. The current price “implies 10-year US reals below -2%,” the bank said, adding that 2024’s performance isn’t a function of retail inflows (which sum to a mere $2.5 billion), and can thus be “explained only by unprecedented central bank buying.”

Gold, the same BofA note went on, “is now the second largest reserve asset” (behind the dollar obviously) and can be advantageous in portfolios given its low correlation to equities.