“Gold and Inflation Expectations”

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  • Post category:Gold

I don’t want this website to be a place where one guy puts out his views and expects readers to agree with everything or even assume that the source is right about most things.*  I believe I am right about most things within my realm of market management, but there are a lot of smart people out there; people who know a lot more than I about their given fields of expertise.

So on occasion I want to get back to highlighting a few quality market writers as the departed Biiwii.com used to do. Mark Turner, Kevin Muir, Keith Weiner and others, including Steve Saville are important reads for those of us interested in metals, mining and macro.

Steve happens to be more like me than the others, but in this blog post he explains so well a concept that I’ve harped on for years; contrary to what lazy and/or promotional gold analysts routinely feed the herds, gold is not so much about inflation. It is about counter-cyclicality as a leader to new inflationary phases, during which gold will under, not out perform.

Speaking personally, that is why I am bullish on silver for later in 2019 with a view that when it wrestles leadership away from gold the first spark of the new inflationary macro phase will be signaled. Saville uses other tools to illustrate this dynamic. Check it out.

Gold and Inflation Expectations

Here is a compelling correlation between the Commodities/Gold ratio and the ‘Inflation Expectations’ ETF.

gold rinf

An implication of the above charts is that if inflation expectations are close to an intermediate-term bottom then the financial world is close to the start of a 6-12 month period during which the industrial metals perform better than gold. Alternatively, a further decline in inflation expectations (increasing fear of deflation) would lead to additional relative strength in gold.

I believe there is a whopper of an inflation trade brewing out there and while gold and its miners are as usual leading the way, they will eventually be subordinate to other areas as the inflation takes hold. As I used to write back in the inflationary 2003-2008 period, “gold is not silver is not oil is not copper is not tin is not hogs”. Gold is stable.

You might want to keep this in mind when the inevitable day comes that the golden bull horns are sounding while inflation starts breaking out. You’ll know the primary offenders as they will be telling you to buy gold stocks as protection against the massive Central Bank instigated inflation.

* The obvious issue being my rare but awkward forays into politics and portrayals of the US president as a clown, which seems to irk and alienate a fair amount of people. But at least you know that right or wrong, this site is not being sanitized for max readership or NFTRH subscription.

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