A short and simple update this morning. The 10yr-2yr yield curve is ticking a new high off of what I believe is secondary extreme inversion to the one from March. With nominal yields rising it’s been signaling inflation, but it sure does not have to stay that way. As long as short-term bonds are favored relative to long-term bonds – whether they are being bought (deflationary signaling) or sold (inflationary signaling), the curve will steepen.
This is relevant to gold especially, because the indication of a steepening yield curve is that all is not well one way or the other. If it’s inflationary, the inflation is not working so well for the risk ‘on’ cyclical world. If it’s deflationary signaling/pressure, the Fed is indicated by the bond market to start weakening before long as short-term bond yields decline and risk goes ‘off’.
If nothing else, it is a potential caveat in development. A caveat to my more bearish objectives for gold stocks (GDX 21 +/-). We have hit the higher low here at the sub-28 gap, which was the original target. If it holds and indicators like yield curves start to turn favorable, I’ll be prepared to turn bullish. If it does not hold, a resulting lower low to the March low would either be a bear trap false breakdown/shakeout or we’d load the lower target.
