Loading ...Yield spread vs Gold sector
Most watched yield spread is 10 yr and 3 months Tbill. last week this yield curve turned up to steepening. It is a boom-bust indicator. Turning up to widening puts time line of recession in 6 month. Thats when NBER will declare economy is in recession.
On the longer end of Treasuries 30 yrs and 5 year (TYX/FVX) spread has significant effect on PM sector. As it can be seen from these charts. Yield spread has been steepening this year.
From TSI blog:
“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.”
https://tsi-blog.com/2018/08/another-look-at-the-us-yield-curve/
Post from 2008 on relationship of Yield curve and HUI: From 2001 to 2011 yield spread was widening to 4.68 basis. HUI outperform SPX.
“as yield spread widened (short term interest rates fell relative to long term rates) gold trended higher relative to industrial metals and HUI provide substantial leverage to gains in the gold price. However, the ability of gold stocks (HUI) to leverage gains in the gold price evaporated when the yield spread began to contract (narrows) and gold began to under perform the industrial metals.”
http://http://www.321gold.com/editorials/saville/saville021908.html
Current status of Yield curve and HUI, HUI to Gold ratio, Silver to gold ratio. It appears SGR will take time well in to gold bull before turning up. When that happens ROCKS will rock.
charts: As you can see yield spread on long end of bonds have turned up earlier. so as gold sector have started to change the trend.
Nice read. This is article that covers similar topic.
https://www.crescat.net/on-the-precipice/
Thanks for sharing. Great post.
I found why gold to silver ratio diverged from credit spread MUT/TLT during explosion of credit from 2012. CBs did not keep up with gold purchases to balance fiat assets.
“With respect to the numerator part of this imbalance, we are incredibly bullish today on precious metals commodities. We believe gold is historically undervalued relative to the global fiat monetary base as shown in the chart below. Look at the target price for gold in this macro chart! It is almost double today’s prices. Gold is the longest running and most widely held global central-bank reserve currency. In the long run, it should follow the level of global fiat money printing and has a lot of catching up to do.”
Beginning of this year BIS declared gold as tier I asset for all CBs. Now it will take time for them (CB) to readjust their balance sheet.