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Gold prices have risen in a straight-line higher, even as volatility shook the S&P 500. In fact, even as the US Dollar hit a new 52-week high and the 10-year note yield broke 4.80%, gold surged. Historically speaking, gold should be down sharply. The opposite is happening. The last 12 months have been exceptionally strong for both the 10-year note yield and the US Dollar, $DXY. Meanwhile, gold has gained 5 TIMES the return of $DXY and soared with interest rates. Gold is a zero-yield asset which historically FALLS in high rate environments. As seen in this chart from 2016, the US Dollar, $DXY, and Gold typically move inversely. A stronger US Dollar makes buying gold more expensive for foreign investors. Even with inverse indicators rising, gold continues to make record highs. Gold is pricing-in uncertainty. As China deals with deflation, the US deals with inflation and record deficit spending. Deficit spending has driven bond yields higher, due to the need to issue more government bonds. So, even with higher yields, gold is pricing in more inflation and a deficit spending crisis. Gold’s relative strength is only getting stronger as we approach tomorrow’s Fed meeting. Broader equity market volatility is pushing gold prices higher along with uncertainty around rates. Due to rising deficit spending, gold is becoming THE global safe haven trade. Furthermore, markets are pricing-in the trade war that has likely already begun. The Tax Foundation estimates that if 60% tariffs are imposed on China and 20% on everyone else, the average tariff rate will increase to 17.7%. Inflation would jump by ~0.5 percentage points. Lastly, US money supply growth now at a fresh 27-month high. This has driven ALL commodities higher and added more fuel to the inflationary fire. And, if the US Dollar Index begins to finally pull back, foreign investment in gold is set to rise. 2024 marked the best year for gold since 2010. As seen below, inflation adjusted gold prices are now at levels now seen since the 1970s. We continue to watch gold as a leading indicator for the macroeconomy. submitted by /u/XGramatik |
TKL: Gold is telling us something – Amid the DeepSeek volatility, gold quietly hit a record high this week, now up +35% in 12 months. Today, gold prices are surging toward $2,800/oz with YTD gains nearly DOUBLING the S&P 500’s return. What is happening with gold?
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