It’s actually a look we have noted in the past, which is that a steepening yield curve can either be driven by relatively declining short-term yields and an oncoming liquidity event or by relatively rising long-term yields and increasing inflation expectations.
Steve Saville takes A Different Look at the US Yield Curve
From the post:
The reason that the next yield-curve trend reversal from flattening to steepening will not necessarily signal the onset of an economic bust/recession is that there are two potential drivers of such a reversal. The reversal could be driven by falling short-term interest rates or rising long-term interest rates. If it’s the former it signals a boom-bust transition, but if it’s the latter it signals rising inflation expectations.
As an aside, regardless of whether a major yield-curve reversal from flattening to steepening is driven by the unravelling of an artificial boom or rising inflation expectations, it is bullish for gold. By the same token, a major reversal in the yield curve from steepening to flattening is always bearish for gold.
With the T-Bond likely to strengthen for at least the next two months there is little chance that rising long-term interest rates will drive a yield curve reversal during the third quarter of this year, but it’s something that could happen late this year or during the first half of next year.
Thing 1 would be a typical liquidation (which in the age of ever more intense booms/busts may not seem so typical) and Thing 2 would be along the lines of the von Mises Crack Up Boom style inflationary bonfire. In that event I don’t think you want to be short much of anything, and that includes stocks. So Thing 2 is the scenario where theoretically at least, gold and the stock market can go up together.
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