Happy new year to all.
Chart I sent out today...
Above is the 10-2 spread vs gold.
One thing to be sure of is that inflation expectations are increasing, shown by the bull steepening of the curve.
Gold rallying has only a little to do with certain central banks buying more of it.
Nor is it due to some kind of risk off sentiment, since equity markets are fully supported by central bank asset purchases still ('Not-QE, anyone?).
I'm pretty sure it's due to certain investors seeing mid term inflation picking up and having a view that gold still acts as a traditional inflation hedge.
I believe that central bankers are in fact calling their own bluffs now by asking for governments to increase spending, admitting that ZIRP and QE have failed to stimulate growth.
Christine Lagarde, the new ECB President has been asking European governments to up spending, Trump has already increased spending massively, Japan is looking to spend $121bn and the UK's new Tory government has committed to vast increases in spending, alongside the large uptick in spending that the UK has already seen through 2019...
This leads to an upward push in aggregate demand, also known as the price level - as the price level increases, that indicates inflation.
As inflation expectations increase, so will rates in the mid term...
Negative real rates are not the new norm and I fear a reversion will catch many out, especially in the corporate debt markets as yield on debt increases, whilst many bonds are misgraded (many should be below BBB and not classed as investment grade).
I do not think a recession is imminent either.
The idea then is to stay long gold as a function of inflation hedging and potentially to look for shorts on the Aussie dollar versus USD as that gold trade becomes more and more priced in and central banks then look to move rates back to the upside.
Chart I sent out today...
Above is the 10-2 spread vs gold.
One thing to be sure of is that inflation expectations are increasing, shown by the bull steepening of the curve.
Gold rallying has only a little to do with certain central banks buying more of it.
Nor is it due to some kind of risk off sentiment, since equity markets are fully supported by central bank asset purchases still ('Not-QE, anyone?).
I'm pretty sure it's due to certain investors seeing mid term inflation picking up and having a view that gold still acts as a traditional inflation hedge.
I believe that central bankers are in fact calling their own bluffs now by asking for governments to increase spending, admitting that ZIRP and QE have failed to stimulate growth.
Christine Lagarde, the new ECB President has been asking European governments to up spending, Trump has already increased spending massively, Japan is looking to spend $121bn and the UK's new Tory government has committed to vast increases in spending, alongside the large uptick in spending that the UK has already seen through 2019...
This leads to an upward push in aggregate demand, also known as the price level - as the price level increases, that indicates inflation.
As inflation expectations increase, so will rates in the mid term...
Negative real rates are not the new norm and I fear a reversion will catch many out, especially in the corporate debt markets as yield on debt increases, whilst many bonds are misgraded (many should be below BBB and not classed as investment grade).
I do not think a recession is imminent either.
The idea then is to stay long gold as a function of inflation hedging and potentially to look for shorts on the Aussie dollar versus USD as that gold trade becomes more and more priced in and central banks then look to move rates back to the upside.
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