Heads Gold Wins; Tails Gold Doesn’t Lose

Jim Rickards Says Look to Gold to See What’s Coming

Bullion.Directory precious metals analysis 19 May, 2021
By Peter Reagan
Financial Market Strategist at Birch Gold Group

It’s often stated that the stock market is gold’s primary competitor, but the inverse correlation between the markets has been absent for some years. Instead, bonds position themselves as gold’s archnemesis as investors look at the two and ask themselves: which is the better safe haven?

When the $900 billion December bailout was followed by a $1.9 trillion one and promises of $3 trillion more to be printed, investors were quick to expect inflation, and with good reason. Taking a look at the two safe-havens, Rickards hypothesizes they believed Treasuries were preferable with rates climbing off the floor of 0.508% in August 2020, and bought bonds instead of zero-yield gold.

To Rickards, this is what caused gold to remain rangebound over the past few quarters, (though it’s a pretty good range). The problem is that investors were too hasty in their inflation expectations, while placing too much faith in government bonds.

Rickards believes 10-year Treasury yields peaked at 1.74% on March 31 and are unlikely to spring back up. That view isn’t difficult to corroborate given the dire straits of the global bond market.

Gold responded by jumping from around $1,680 to $1,850 since then. As Rickards points out, gold prices are driven more strongly by actual inflation than inflationary expectations, and the former has so far been widely outstripped by the latter. With Ricards’s worst-case of rising bond yields and no inflation behind us, he explains gold finds itself with two paths ahead, each of them bullish.

If Treasury rates continue to decline in the absence of inflation, lessened appetite for bonds will drive investors to gold. Lower yield reduces the opportunity cost of holding gold instead.

On the other hand, if inflation does show up in clear fashion, buying gold will become an obvious decision (as history has proven). As for other drivers of gold’s price, one only needs to look at the incredibly disappointing jobs report from April 15 cast doubt on the certainty of the U.S.’s economic recovery.

Ultimately, Rickards makes his case in plain language:

Gold has a better track record of predicting economic developments than any other asset class. Gold looks so far ahead that investors often cannot see what the gold price is saying.

In other words, if you don’t understand gold’s price, then your assumptions are faulty. Gold is right.

This article was originally published here

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