The real, or inflation indexed yield on the 5yr is spiking
In Saturday’s interview Jordan asked me a question about real yields and gold. Specifically, why is gold so relatively firm in the face of the spike in the inflation adjusted yield?
Well, I assume he is looking at a graph like this or something inflation adjusted like it to view the yield, which shows that monetary policy is very much in control of the situation. Or more to accurately, the bond market is very much in control of the situation and by extension, it has dragged Fed along with it due to the implications of charts like the one in this post from last week.
Here is a picture of the 5yr ‘real’ yield having spiked hard into positive territory.
In a post from 2018 I borrowed a chart from a Callum Thomas post about how gold and the 5 year real yield had gone in lockstep until a separation of ways happened in 2017. As we know, gold went on to maintain a bullish situation in 2019 before ramping on the COVID crisis and its deflationary lever that yanked the Fed into inflationary heroics to save us all from a good market clean out and present to us with today’s rising prices problem. Take a bow, eggheads.
Back on point, real yields (not inverted, 1st graph above) actually topped out in 2018 and the inverse went up again (real yields dropped). So gold was right in staying aloft and real yields were due for a fall.
That could well be what gold is saying this time as well. Just a little color to add to the discussion where sub-30 minutes was not enough to cover every detail clearly. It’s not like gold is stupidly floating aloft up there. It’s done a lot of good corrective work since mid-2020. Real yields say it should have fallen out of the sky like a clay pigeon and yet there it floats, like heavy metal thunder. Or something like that.
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