Comment: Gold, Stocks, and Fed Sponsored Landings
What to Expect from Powell Prep
Comment on Gold vs. Yields:
Right now we are seeing bullish speculation on why Gold is so strong given the higher yields.
One of today’s pieces (below) correctly notes:
What is behind gold's resilience in the face of soaring bond yields? United States 2-Year yields hit a fresh 16-year high, while 10-year yields are on course to recapture their 16-year highs attained in October. The chart below shows gold posting three consecutive daily gains and bond yields. The last time this happened was in April of last year.
While this is correct we would note, it is not just Gold that is resilient in the face of higher yields. It is stocks. As one of our Founders said today in a note after some back and forth.
But honestly, I'm in awe of this market's resiliency.... or should I say the oligarchs' ability to prop it. I mean, I'm getting 4.2% in my money market. The S&P500 is yielding 1.57% !!!
And there you have it. Most markets are discounting a soft landing now. In fact the higher short term rates get, it seems the more deferred but softer the landing perceived to follow becomes.
The fed raises its terminal target to 5% no problem. 6% all good…. 7% lets party! Exaggerations aside: The stock market is definitely discounting the Fed has things well under control and will either get a soft-est landing or a non-landing.
That is why Gold is resilient now. Because everything is discounting a very nice landing when the rate hikes are done. That includes Gold as well.
Meaning, people are not selling it short because they feel the rates are high, but will be able to come down again soon. Gold is a risk-on asset right now, like during QE.
Now, if that narrative ends and both Stocks and Gold plummet from a realization that a soft landing isn’t coming (Fed overhiked) , and/or inflation is not truly dead (Fed underhiked), what will you buy?
Think of it like the Covid crisis in slow motion if things unravel. We’re not predicting, but how long can a stock market remain resilient with 4% money market yields unless it is believing rates will revert lower very soon?
To be fair, we are the ones saying this is an Anti-Goldilocks era where there will be higher inflation, higher rates, and more resilient Gold. But we also expect the inflationary headwinds to keep a lid on stocks. So we’re paying attention.
Gold report plus a very good macro comment by the GS trading desk, plus Powell Prep follows