We posted last week the correlation of the bond and gold. Some argue gold has been rallying as a hedge against inflation or inversely with the dollar. Don’t think so and not yet on the inflation hedge.
Gold is moody and is currently in the mood to track interest rates, at least, for now. Check out how the 10-year note and gold are tracking in the chart below.
Remember gold is a “weird cat” with many lives and many reasons to move the way it does.
Gold is a weird cat with multiple personalities and more than nine lives. The yellow metal is up almost $100 since last Friday’s weak U.S. employment report.
At any given time period gold will assume any one of its multiple personalities based on a fundamental story and trade as: 1) a safe haven; 2) an inflation hedge; 3) a commodity; 4) a store of value against central bank balance sheet expansion; 5) an alternative currency; 6) central bank reserve currency; 7) a diversification asset; 8) an Armageddon hedge; and/or 9) all of the above.
– Global Macro Monitor
Note the dollar was down today as was gold. Rates are moving higher across the world. The 10-year German Bund yield has doubled since the new year, from 20 bps to close to 50 bps.
We believe the 35-year bond bull is over and expect interest rates to move up to the 5 percent level over the next few years. The tighter liquidity conditions should take gold into the triple digits this year. Inflation cometh, folks.