The downside potential in precious metals discussed last week is playing out as Gold and gold stocks have broken down technically.
The global economy appears to be firming and that is evidenced by a sustained rebound in global equity markets.
As a result, the potential for a rate cut which pushed precious metals higher is now unwinding. That has caused the breakdown in precious metals and there is more unwinding to go.
We have trumpeted the need (in precious metals) for a rate cut as a fundamental catalyst for the next bull market. But there is another scenario that plays well for Gold.
Letís step back for a second and remember that Gold is driven by declining real interest rates and secondarily, a steepening yield curve. Either essentially entails Fed rate cuts or inflation rising faster than short-term rates which in other words equates to rising inflation expectations.
In the chart below we plot Gold along with a number of fundamental indicators for Gold. These include the real 5-year TIPS yield (as calculated from the TIPS market), the real 5-year yield, the real fed funds rate and the yield curve (upside down).
If the Federal Reserve is not cutting rates in the next 12 months then the best case scenario for Gold would be a bump in inflation that leads to a material decline in real interest rates and a steepening of the yield curve.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC,
is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.