USD and Gold; what gives?

USD and gold have both been firm (this morning) against a steepening yield curve

It’s a deflationary yield curve steepener, as evidenced by both the 10yr and 2yr yields dropping and the long end of the 10-2 yield curve doing this:

10 year Treasury yield breaks down as USD and gold remain firm

So how is your local Twittter inflation influencer rallying the troops lately? Anyone? Bueller? Larry? Anyone?

Inflation is done and USD and gold are both firm

Sure, it took a while. But Larry’s “fuck you” was not a sign of mental toughness. It was a sign of vulnerability at the hands of dogma. I still remember his herd tweeting “you tell him, Larry!”. It was funny as hell in a creepy way. *

USD and gold are both firm, to the bewilderment of many

Well Lar, I am in it for principle. The principle of trying to get the markets right rather than hold tens of thousands of robotic drones in the grip of my dogmatic beliefs. But anyway, I have digressed.

This post simply wants to note that the steepening yield curve, under pains of systemic stress and economic deceleration (it’s there, if you look at non-laggards, like manufacturing), is swinging in favor of deflation as we have anticipated. That does not mean inflation will not make a comeback, but it does mean that it’s very likely going the other way first.

The 10yr-2yr yield curve is steepening as both USD and gold remain firm

Gold ticked the new cycle high we have projected for it. It could now be vulnerable to any short-term relief from soothsaying government or Fed officials and/or the enthusiasm of its own buggish herd (and oh yes, there’s that 2000 round number). But gold has sent a price scout up there for higher levels and a steepening yield curve would generally be beneficial as the system comes under future stress.

gold price
Gold price (futures)

Meanwhile, with the ECB in rate hike mode I am a little mixed on Uncle Buck. The chart is questionable at best and there is a case for a rally on market liquidity problems, but there is also a bear case for USD due to more hawkish global policy vs. US policy, which is set to flip away from its hawk routine in the coming months.

Put it this way, unlike previous deflationary episodes, I am no USD bull. Not yet, anyway. It is interesting at least, that gold has been getting a better liquidity bid than USD to this point.

us dollar index (USD)

* I get creeped out by herding humans because I don’t understand them.

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This Post Has 2 Comments

  1. MikeC

    All I had to see was “Fiat Masters” to know where he stood. Good post.

    1. Gary

      Believe it or not, he was an NFTRH subscriber from early on. I actually released him (well, his company) because he/they obviously were not following anything I wrote. I met Larry for lunch once. He seemed like a really nice, if naive (and bewildered about why gold was going down) guy back in the 2012(ish) time frame.

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