I hated this exchange when it was reposted every day and now we all understand why.
Correlation does not equal causation.
Gold is a chameleon. Yes, it sometimes competes with bonds and yield is a factor, but it’s also a currency. What happened when they diverged?
Russia invaded Ukraine and the West confiscated Russia’s foreign sovereign bonds.
This is also the moment when the Fed lost control of inflation after having long declared that it was transitory.
Today, Russia, China and other countries hostile to the United States have undoubtedly learned their lesson. The supply of gold is surely coming from Asia and most likely from China, as it sells bonds and buys gold. But not just from official sources, gold is highly valued in China and many other countries with capital controls and a history of government instability. There is also something of a rush for gold ETFs in China; developments will need to be monitored in light of the current strong correction of the yuan.
The 20 basis point rise in Treasuries over two days along with the rise in CPI caused a $30 drop in gold, but this has now been completely erased. This is another successful test.
Gold 10 minutes
I still don’t see much retail enthusiasm for gold, although silver’s recent rally suggests it’s starting. The physical market is also relatively small compared to the huge amounts of money currently circulating in the markets.
Over the past five years, gold has now outperformed the S&P 500 excluding dividends.
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