I’m having trouble getting real-time quotes, since I’m now in Slovakia and Google keeps “helping” by switching to some weirdo site. But assuming the trends are the same today as they were yesterday, gold is getting crushed, while both nominal and TIPS Treasury yields are down too.
On the face of it, that means neither Krugman nor I know anything about gold prices. Since real yields have gone down (the 30-year TIPS dropped from 1.10% to .87% in the last week, as of yesterday), Krugman’s new, chic model that has the blogosphere in a tizzy, says that gold should have gone up.
Strictly speaking, at least as of yesterday “the market’s” expectations about future price inflation have dropped, so I could be a jerk and claim victory. However, I’ll be honest and say that if you had asked me, “People are freaking out and think the euro might collapse any day, do you think gold will plummet?” I would have said no. (I would have allowed that it would go down, but I’m surprised by how much.)
Of course, I think most analysts would say–and I have no problem with this conventional explanation–that we are witnessing a huge flight into liquidity, meaning that TIPS are at a relative disadvantage to regular Treasurys, and that some firms that were long gold might be selling in order to meet margin calls etc. But my point is, markets are really complicated, and whenever anybody–Keynesian or Austrian–comes up with a model based on “the” factor that drives a particular price, eventually that model will blow up in your face.