Chris Rutherglen: The Interest Rate Effect on Gold’s Breakout
Tom welcomes back private investor and engineer Chris Rutherglen for an in-depth analysis of gold and it’s valuations. Chris explains his process for analyzing the long-term and short-term price fluctuations to find the opportune timing for the markets.
Chris delves into the causes behind price fluctuations of gold and patterns for future price predictions. He uses a data-driven method, contradicting narrative-driven strategies. His focus is the relationship between gold prices and real yields, and the importance of logarithmic scale presentations. Rutherglen also presents a formula based on the assumption that the world’s investable gold supply’s market value is directly proportional to the USD money supply’s market value.
Rutherglen points to inconsistencies between Treasury Inflation-Protected Securities (TIPS) and the Consumer Price Index (CPI). He asserts that TIPS does not accurately reflect the inflation rate, causing it to differ from the gold inflation expectation. Arguing the CPI underestimates inflation, Rutherglen develops a model to calculate key gold price drivers that can predict gold prices accurately.
The connection between gold prices and interest rate cycles is explored, including the impact of the Fed funds rate. When interest rates peak, anticipation of falling short-term rates cuts the ten- and two-year yields, which can cause a jump in gold prices—usually during economic slowdowns. Rutherglen also delves into the futures market, suggesting that previous interest rate cycles guide future gold prices.
Finally, Rutherglen admits initial error regarding the Federal Reserve’s hiking rates impacting his $3,000 gold price target. Low rates have brought it closer to the target, with an expected increase in the money supply and potential 2026 or 2027 recessions in mind. This broad financial perspective, aimed at removing uncertainty, should help investors find stable investment strategies.
Time Stamp References:
0:00 – Introduction
0:50 – Gold & Dollar Supply
5:25 – Gold Value Bands
12:15 – Current Price Chart
13:30 – Price Vs. Yields
22:00 – Mid-Cycle Levels
24:57 – Gold & CPI Chart
28:26 – Post-80s CPI Chart
30:08 – 2000s To Present
38:52 – Four Fundamental Drivers
46:00 – Gold, Fed, & Yields
53:40 – Rates & Gold Breakout
55:45 – Futures & Open Interest
1:02:42 – Rounding & Summary
1:04:00 – Gold, S&P500, & Rates
1:06:12 – Targets & Factors
1:08:34 – Timing & Fed Reversal
1:11:26 – Wrap Up
Talking Points From This Episode
- Chris data-driven approach predicts gold price fluctuations based on USD money supply.
- He points to an inconsistency between Treasury Inflation-Protected Securities and the Consumer Price Index in reflecting inflation.
- Rutherglen suggests that future gold prices are likely guided by historical interest rate cycles.
Guest Links:
Twitter: https://twitter.com/CRutherglen
Substack: https://giresearch.substack.com
Chris Rutherglen is a private investor whose primary occupation is in science & engineering with a focus on novel semiconductor devices for microwave and mm-wave applications. He began investing in the precious metal space in 2003 and has done well following a value-oriented investment approach. Although he has never been employed in the finance/investment field professionally, he did complete level 3 of the Chartered Financial Analyst (CFA) program in 2011. Chris has a BS in physics from the California Institute of Technology and a Ph.D. in Electrical Computer Engineering from the University of California, Irvin