TIPS in gold trading

TIPS (Treasury Inflation-Protected Securities) are US government bonds whose principal rises with the Consumer Price Index. Because inflation is compensated separately, the quoted yield on a TIPS is a real yield. The gap between a nominal Treasury yield and the TIPS yield of the same maturity is the breakeven inflation rate, the market’s implied inflation forecast.

How it applies to gold trading

The 10-year TIPS yield is the number most analysts mean when they say “real yields”. It is published daily and moves on the same events that move gold: Fed decisions, inflation prints and growth data. A sharp rise in the 10-year TIPS yield after a hawkish FOMC statement is usually accompanied by a fall in gold; a drop after a weak jobs report usually supports it. Traders use it as a macro compass rather than a timing tool.

Breakevens matter too. If nominal yields rise but breakevens rise just as much, the real yield is unchanged and gold has no reason to react. If nominal yields rise while breakevens fall, real yields have jumped and gold often falls hard.

The real yields tool on this site charts the 10-year TIPS yield against gold, which shows how closely the two have moved over the chosen period and when the relationship has broken down.

A common mistake

Reading a headline about “yields rising” and shorting gold without checking whether the rise was real or inflation-driven. The decomposition takes thirty seconds and changes the conclusion.

See also: Real yields, CPI, FOMC, Inflation hedge.

Frequently asked questions