# Precious metals investment terms A to Z

R-squared

R-squared is a statistical measure of how well a statistical model (it may be just a line) fits the data. It is also known as the coefficient of determination, and denoted as R2 or r2. To be more specific, R-squared is the percentage of the variability of the data that is explained by the model (i.e., it is the explained variation divided by the total variation). In simple words, R2 shows how much of the changes in one thing (like the prices of gold stocks) can be explained by changes in another thing (like the price of gold). R-squared is always between 0 and 100 percent, where the higher the-R squared, the better the model fits the data. An R2 of 1 indicates that the model (it may be a simple regression line) perfectly fits the data, while an R2 of 0 means that the model does not fit the data at all.

Rally

A rally is a period during which prices in the financial markets go up. Rallies tend to be of shorter duration-- days, weeks or months -- than bull markets, which can last for years.

Real Interest Rates

Interest rates quoted in the markets are nominal, so one typically has to adjust them for inflation. Inflation determines the difference between nominal and real interest rates. Nominal interest rates are before taking inflation into account, while real rates are nominal rates adjusted for inflation. As there are several inflation indices (and many maturities), there are many measures of real interest rates. However, analysts often use yields on Treasury Inflation Protected Securities (TIPS), which are indexed to inflation (CPI) and their par value rises with inflation, as a proxy for real interest rates. Investors should remember that real interest rates are much more important for the gold market than changes in nominal interest rates, including the federal funds rate.

Redemption Mechanism

A redemption mechanism (also called a creation/redemption mechanism) is deployed by market makers to ensure the price of an ETF does not fluctuate too far away from its NAV.

Registered Gold

Comex has several warehouses for metals (as investors may take delivery), which contain lots of gold. The bullion held in these warehouses is divided into two categories: eligible gold and registered gold.

Resistance level

Resistance level is a key concept in Technical Analysis that is very helpful in determining the right moment to sell in an uptrend or to sell short in a downtrend.

The reverse head and shoulders formation (also known as inverse head and shoulders formation) is one of the most popular and reliable formations used in technical analysis. As the name suggests, it has a shape similar to the head and shoulder. This head and shoulders bottom pattern usually signals a change in price trend. When it occurs the security is likely to move against the previous downtrend.

The term “risk premium” refers to the difference between the higher interest rates that riskier investments must pay to attract investors and the interest rate of the risk-free investment. Thus, it is the return in excess of the risk-free rate of return than an investment is expected to yield. It is a compensation for investors to bear more risk and hold the risky asset rather than the risk-free asset. The risk premium is positive, since people are generally risk averse, i.e. they dislike risk. The risk premium explains why, for example, stocks have higher expected returns than a bank account or Treasury bonds.