Written by Frank Holmes, CEO Of U.S. Global Investors

The last time gold had a quarter this strong, Ronald Reagan was a year into his second term as president, the Soviet Union was taking its final gasp and the U.S. was still reeling from the Challenger explosion. In the first quarter, the yellow metal rose 16.5 percent, its best three-month performance since 1986, mostly on fears of negative interest rates and other global central bank policies.

Bloomberg writes that the current gold rally has “cemented its status as a store of value.” Before now, a gold bear market persisted not because the metal had lost its status necessarily, but because of the strong U.S. dollar and, more significantly, positive real interest rates. According to Pierre Lassonde, cofounder of Franco-Nevada, gold is the fourth most liquid asset in the world.

As I've mentioned many times before—during interviews and in the Investor Alert and my CEO blog Frank Talk—gold has historically performed best when real rates turned negative. We were one of the earliest to discuss this important relationship on a regular basis, and now I'm starting to see it covered frequently in the mainstream media.

To get the real rate, you subtract the current consumer price index (CPI) reading, or inflation, from the government bond yield. When yields are low—or negative, as they are now—it encourages smart investors to seek other stores of value, including gold.

Below, you can see that when gold prices peaked at $1,900 per ounce in August 2011, real interest rates were close to negative 4 percent. A five-year Treasury bond yielded only 0.9 percent—and that's before inflation took 3.8 percent. (Decades ago, when I was a young analyst in Canada, we would compareeverything to the five-year government bond yield.) But as real rates rose, gold prices fell. Now the reverse is happening.

Double the Gold Returns under Negative Real Rates?