As you can see from the Cross-Correlation Model, gold prices and TIPS yield are significantly negatively correlated (-84.27%, -77.53%). Based on the model, TIPS yield could possibly explain the rise and fall of gold prices due to the high negative correlation between both markets. This indicates that when gold prices increase, TIPS yield would fall. TIPS yield is affected by normal yield and inflation rates (CPI), and either factor could affect the increase or decrease of TIPS yield.As shown above, between 2015 to 2016, gold prices seemed to be undervalued as compared to TIPS yield. However, at the end of 2018, gold prices were starting to match TIPS, and as of 2019, gold prices could be seen as reasonably priced when comparing to the yield shown in the graph.

It is evident from the graphs above that gold prices have increased drastically over the past few months:

• Is there a possibility for the gold prices to go up to USD$2,000? If it is indeed possible, without considering other factors such as demand and supply, geopolitical issues (such as the recent trade war between US and China) and currency strength, this could mean that TIPS yield could potentially go down to a -2.0%. Even though possible, it could prove to be quite challenging unless there is an occurrence of a very high inflation rate or a very low normal yield percentage at that point in time.
• Based on the Cross-Correlation Model, gold prices and TIPS yield have a significantly high negative correlation (-84.27, -77.53), concluding that it is one of the major key factors influencing gold prices recently. However, other factors have not been considered into the price of gold yet.
• Therefore, there is still a need for close monitoring of other factors that could influence gold price movements, such as economic, geopolitics and currency factors.

Looking at the graph above, gold is still a good form of investment to hedge against inflation but would it be a viable option for providing profit-earning opportunities?

What would you predict about the changes in the price of gold? Do you think that the price of gold would remain constant, increase or decrease?

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