Four drivers, and knowing which one is in charge
Gold explanations usually pick one driver and stop. "Inflation hedge." "Moves opposite the dollar." "Safe haven." Each is true sometimes and wrong often, which makes any of them alone useless as a model.
Gold has four drivers. The skill is identifying which is currently in control, because the same headline produces opposite outcomes depending on the answer.
Driver 1 — Real yields (strongest, most consistent)
Gold pays no interest. Holding it costs whatever a safe real return would have paid instead.
`` Real yield = Nominal yield − Expected inflation ``
Real yields fall → gold's opportunity cost falls → gold rises. Real yields rise → gold must compete with an actual positive risk-free return, and usually loses.
This explains the thing "inflation hedge" cannot: gold falling during high inflation. If nominal rates rise faster than inflation, real yields rise, and gold is hedging nothing.
Watch the US 10-year TIPS yield. It quotes a real yield directly and tracks gold better than any other single series.