Gold And T-Bond Yields Rising As Expected

Three trends I’ve been forecasting have been happening in the last year:

They’re all related to late stage inflation and the expected tax cuts, which have materialized.

One thing that still hasn’t happened, and still doesn’t look imminent yet, is the bursting of this increasingly parabolic stock bubble.

Hard for that to happen when we’ve had the QE free lunch for so long, and now the large tax cuts to corporations.

GDP growth seems to be picking up, but not as much as expected. The fourth quarter reading came in at 2.6% instead of the expected 3.0%-plus. The full 2017 reading was 2.3%, just marginally higher than past years that have averaged 2%.

Rising growth suggests rising inflation and rising inflation means higher T-bond yields, which have already been the case as the chart shows.

I have also been warning that inflation is a lagging indicator.

The last recession saw inflation rise in the first several months – and T-Bond yields with it – before coming down into late 2008/early 2009. This is typical and comes from rising wages with tighter labor availability and rising commodity prices in the late stages of a boom.

On a related note, I’ve been expecting a substantial gold rally – but not a new bull market for the commodity – from the extreme oversold reaction into the end of 2015, when gold hit $1,050 from an all-time high of $1,934 in September 2011.

Look at this next chart…

Note that this chart is the annualized percentage change in gold to correlate with the percentage rate of inflation.

Gold is more of an inflation hedge, than a crisis hedge.

It crashed 33% in the midst of the Lehman Brothers meltdown, while silver was down 50%.

With this trend of mildly rising inflation, gold prices and T-bond yields will likely continue moving upward until there are signs of an economic slowdown and/or a bubble burst in stocks. Then deflation will set in, as occurred briefly in late 2008.