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It helps to understand that bond yields tend to follow the movements of gold prices with a lag time of about 20-1/2 months. Inflation is on a slightly different schedule. The drop in bond yields lately echoes a pause in gold's uptrend in 2019. Inflection point is just ahead. https://t.co/jo4hy53fuO pic.twitter.com/wKHBqhep3W— Tom McClellan (@McClellanOsc) July 23, 2021
The above Tweet get the gold bulls and bond bears excited, but how accurate is this interpretation? It's easy to test. I asked the computer to study the correlation between High Grade Corporate Bonds (HGCB) and Gold (advanced 20 months) since 1968. The relationship as far back as 1860, but the gold price was 'fixed' until 1973.
If gold leads bond prices, and presumably inflation by 20+ months, then the correlation between HGCB and gold should be well above 0 (strong positive correlation). It did until 1985, then the relationship broke down well below 0. The latest reading stands at -0.60. This suggests a fairly strong inverse correlation (see chart below).
The computer is telling us that gold rallies (advanced 20+ months) are typically followed by bond yield declines. This is opposite of what is suggesting above. Perhaps, gold and bond yields are responding to something else, say confidence?
My point is, be wary of all comments and interpretations on social media. Double check everything.
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