Gold and Yields Telling Two Different Stories, Which One Is Right?

May 17, 5:00 pm EST

We talked yesterday about the building pressure in emerging markets, driven by weakening currencies and rising dollar-denominated oil prices.

With that bubbling up as a potential shock risk, gold hasn’t exactly been telling the story of elevated risks.

You can see in this chart above, since the tax cuts were passed in late 2017, rates have been rising (the purple line). This is a hotter economy, pick-up in inflation story. And, as it should, gold stepped higher with rates all along–until the last few weeks. You can see the divergence in the chart above.

I suspect we’ll see gold snap back to reflect some increasing market risks, and especially to reflect a world where central banks are beginning to finally see inflation pressures build. The gold bugs loved gold when inflation was dead. And now that it’s building, they are surprisingly very quiet.

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