It's not the inflation or even inflation expectations that gold responds to it is the low or negative real rates that put a trace of a smile on the lips of a Zürcher-gnome.
If the yield on the 10-year continues to tick up because of simple supply/demand for the bonds and the expected inflation doesn't kick in, the real rate goes up and gold collapses.
From Sober Look:
The FOMC running out of excuses to maintain current policy
The retail sales measure from the Commerce Department survey came in below expectations today with 0.2% month-over-month change vs. 0.3% expected. Given that the numbers missed the forecast, why then did treasuries sell off sharply after the release?
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| 10y treasury yield (source: WSJ) |
The answer is that while retail sales growth has not been spectacular, it is sufficiently strong for the Fed to begin reducing its securities purchases shortly. Sales ex-autos were up 0.4% (auto sales are volatile and other recent indicators of auto sales have been strong.) The year-over-year ex-auto retail sales number is historically on the lower end, but falls within the 2.5%-5% range that some view as stable....MORE*"...Levels to Watch in Gold"
We're still looking for a move to $1360 but the action is getting a bit long in the tooth. Drivers to be aware of are the real rate on the 10-year (higher = negative for gold) and the strength of the dollar (stronger = negative). Dec. futures $1324.90 down $9.30....
