Gold has three drivers, and they take turns
Most explanations pick one and stop. "Gold is an inflation hedge." "Gold moves opposite the dollar." Both are true sometimes and badly wrong often — which makes them useless as a model.
Gold has three drivers. The trader's job is knowing which one is currently in charge, because the same headline produces opposite outcomes depending on the answer.
Driver one: real yields (the strongest)
Gold pays no interest. Holding it costs you whatever a safe real return would have paid instead.
`` Real yield = Nominal yield − Expected inflation ``
When real yields fall, that opportunity cost falls, and gold rises. When real yields rise, gold has to compete with a risk-free return that is actually positive, and it usually loses.
This is the most reliable of the three by a wide margin. It explains why gold can fall during high inflation — if nominal rates rise faster than inflation, real yields rise, and gold is not a hedge against anything at that moment.
Watch the US 10-year TIPS yield. It is the market's direct quote of a real yield, and it tracks gold more closely than any other single series.