That is my take.
Send him this post.
Here's Heinz' response:
Mish is right insofar, as the important thing to watch is the very short term yields (FF-rate, 3-month bills) vs. the very long term ones (10, 30 yr.). true, the curve has steepened between the belly (5yr. ) and the long end yesterday, but in terms of FF rate/3-month bills vs. 10/30yr. it remains in inversion - in fact a pretty pronounced inversion. this remains a short term depressing factor for gold stocks.
now, it is important to remember that from the point in time when the curve first inverts, to the point in time when the economy weakens and the resulting decline in demand for credit begins to push ST yields down faster than LT ones, prompting a renewed rate cut cycle, there is usually a 6-9 month lag.
in that sense, we are not very far from the point when the reversal to steepening is bound to happen.
the question is really if the gold sector will attempt to discount this event in advance. this imo depends partly on how weak the rest of the stock market is between now and then. the most recent example we have is the late 2000 low point in the gold sector, and that occurred concurrently with the yield curve's turning point - there was no discounting in advance.
however, in the meantime, the relationship between gold stocks and the yield curve is much more widely known, and this imo opens up the possibility of a degree of advance discounting. this is also why the gold sector tends to be especially strong on days when speculation that the rate hike cycle is ending strengthens.
anyway, the chart to watch is the 30 year yield/3-month t-bill yield ratio. this keeps things simple, and i note this chart exhibits a number of divergences by now that suggest steepening is not too far away. check it out on stock charts ( $TYX:$IRX is the symbol you must put in). |
