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Gordon T Long

Gordon T Long

Global Macro Research | Macro-Technical Analysis 

STRATEGIC INVESTMENT INITIATIVES

HARD ASSETS – GOLD

 

WHY IS GOLD FALLING?

Gold has been falling because:
 
  1. The 10Y UST Real Yield is Rising,
  2. The Chinese 12 month forward Credit Impulse is rising.
  3. Inflation Break-evens are driving up the Nominal Value of the 10Y UST Yield,
  4. The US dollar is presently stable and maintaining its value.
Let’s look at the first two to specifically understand the Gold pricing correlation that has been in place since the 2008 Financial Crisis.
 
GOLD VERSUS THE 10Y UST REAL YIELD
 
Since just prior to the 2008 Financial Crisis Gold has tracked very closely against the value of the 10Y UST Yield. It has been particularly tight since the 2018 “VIXameggon” in the short term funding markets.
 
 
FURTHER TIGHTENING IN THE FALL
 
The relationship tightened even further on a daily basis last fall. Shown to the right is the 10Y Real Yield drawn inversely to better mirror the Spot price of Gold. (As Real Yields Rise, Gold Falls)
 
THE RELATIONSHIP HELD TIGHT DURING GOLD’S FEBRUARY DRAW DOWN
 
The relationship tightened even further on a daily basis last fall. Shown to the right is the 10Y Real Yield drawn inversely to better mirror the Spot price of Gold. (As Real Yields Rise, Gold Falls)
 
GOLD HAS ALSO HISTORICALLY TRACKED THE 10Y UST RATE CURVE
 
A further tool is to understand that the spot price of Gold as might be expected, also tracks the 10 UST Real Rate Curve (Chart to Right)
THE CHINESE CREDIT IMPULSE
 
Though it is important to understand the above relationship of Gold with the Real Rate of the 10Y UST, It is just as important to understand what is driving the 10Y UST Real Yield? That critical piece of information is about understanding the importance of the Chinese Credit Impulse!
 
The Chinese Credit Impulse has consistently lead the 10Y UST Real Rate by 12 months for over a decade! To track this is to have a fairly good indication of what to expect regarding real 10Y UST rates. It holds equally well for the longer dated 30Y UST Real Yield.
 
The concern shown above is that we might expect real yields to continue to rise through Q3 2021!
 

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Gordon Long

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