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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: John McCarthy who wrote (65961)6/8/2007 3:22:17 PM
From: mishedlo  Read Replies (1) of 116555
 
From Heinz re: Mish I always thought it was this simple .... :

i've actually written about this in a post on market-traders today and yesterday on Voy. it's a bullish signal, but there are other influences as well.
1. it seems likely that the signal works with a lag this time, because there are many investors in gold who bought for the 'wrong reasons' ( i.e., they bought only because it went up, without knowing why - this has taken some of its countercyclcial qualities away for the time being, until those investors are shaken out).
2. the DXY is beginning to rise, and gold has exhibited strong negative correlation to it of late. as long as this intermarket relationship persists, it appears to be outweighing the yield curve effect.
3. contrary to what the bond market rout may imply or what Fed-speak implies, inflation expectations are actually at the LOW end of their three-year range (t-bond/TIPS ratio). there's a degree of gold demand that historically appears to depend on these; furthermore, real short term interest rates aren't negative anymore, as they were for the better part of gold's advance. chances are they will go there again as the housing bubble keeps deflating.

so i would argue for these reasons the yield curve signal is probably kicking in with a lag.
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