timwest

Bonds Over Gold - Deflation has been the trend but ...

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You can see that Bonds/Gold has repeated the 3 largest rallies in the last 4 years in the recent rally from July. Gold             has dropped and bonds have rallied since July, driving this ratio to the similar magnitude and time rallies.

Previous drops in the ratio from an advance like this one have been at least 60% (early 2012) to as much as 80% (into the fall of 2012).

This time may be different, of course, with the level of central bank buying of bonds around the world to drive rates to such low levels, that it makes the US Long Bond appear cheap with nearly 3% rates while 50% of the rest of the world is at rates less than 1%. However, there has been another force keeping bond prices up and that is "short covering" from financiers who were shorting bonds to buy other assets and currencies . When you get a blow-out decline in a large market, like crude oil             for example, it often means that leveraged longs are getting out and "managing risk" (which is a nice way to say they are selling to stay alive).

I'm trying to make a prediction, but I'll just say that you can see a double-top in this ratio and the recent action is consolidating well off the recent highs. This means to me that the next move could be down for the ratio and by about 8%, so that gold             will outperform bonds by 8% over the course of 1-2 months. That's how I see it.

Tim 1:06AM December 8, 2014
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2use
2 years ago
Wow, this is some great analysis. gold tested its lows 3-4 times now
+2 Reply
Hi, where did you obtain those inflation/deflation numbers?
Reply
timwest PRO Joshua Holibaugh
2 years ago
Hi Joshua - You can read the previous charts of this analysis. Inflation is when gold does well relative to t-bonds, and deflation is when bonds do well relative to gold. So this chart is a ratio of bonds:gold. The chart goes up when bonds outperform gold and the chart goes down when gold outperforms bonds. (20-year US Gov't Bonds, as measured by TLT, which stood for Twenty-year Lehman Treasury, but it has changed its name after Lehman's demise)
+1 Reply
timwest PRO Joshua Holibaugh
2 years ago
The chart also has a lot of information on it that explains what I just explained.
Reply
Another nice analysis, thank you!
+2 Reply
I see, thanks.
Good to have another tool for looking at gold.
+1 Reply
timwest PRO
2 years ago
2% move so far in the direction of the trade. Gold outperforming Bonds.
+1 Reply
Bonds up today (52 week high) and Gold going up as well
Reply
timwest PRO QuantitativeExhaustion
2 months ago
There has been plenty of correlated action lately with Bonds and Gold dropping.
Reply
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