Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Yield Curve Inverted Again. Will Gold Shine Now?

Interest-Rates / US Interest Rates Jun 04, 2019 - 06:53 PM GMT

By: Arkadiusz_Sieron

Interest-Rates

The U.S. yield curve has inverted again, and it has done so to the widest level since 2007. How much of a reason to worry is that actually? A sky-is-falling moment lurking ahead? If so, what chance of saving us does gold have?

Another Yield Curve Inversion Occurs

It’s really getting more serious. Another yield curve inversion… And a much deeper one – that’s frightening!


As you probably remember, the yield curve inverted for the first time in the post-crisis era in March 2019. The inversion was mild and short-lived. And it occurred after the Fed sent a dovish signal, not a hawkish one, as it announced a longer pause in further tightening of monetary policy and the end of shrinking its balance sheet as early as this September.

Hence, we concluded in the Gold News Monitor (here and here) that the March inversion did not fit the classical story when the Fed raises the short-term interest rates to combat inflation, so it did not signal the upcoming recession, especially that the unemployment rate (and other indicators, as well) did not confirm the warning. We were right, the sky did not fall, and the gold prices did not start to rally.

But maybe we will have to change our minds. You can blame the chart below, which is really worrisome. It shows the difference between 10-year and 3-month Treasuries. Just take a look!

Chart 1: Spread between 10-Year Treasuries and 3-Month Treasuries from January 2019 to May 2019.


As one can see, after short inversion in March, the yield curve returned to the positive zone and stayed there for the whole April. However, in the mid-May, the yield curve found itself again in the negative territory. On May 13, the spread fell to -0.01, but the inversion ended the next day. On May 15, however, the yield curve inverted again, to -0.05, but it terminated the next day. But since May 23, the yield curve has been inverted once more. And this time, the inversion is much deeper, as the spread dropped to -0.16.

So, this is the fourth inversion since March, which indicates that the negative spreads might be not so short-lived after all. And not so mild either. Previously, the spreads did not fall below -0.05, while the current difference plunged below -0.15. Hence, the situation might be more serious than we previously though, despite the fact that economic data seems to be solid overall as other recession warning signs simply are not there.

Indeed, the alarm bells are ringing louder not only in the US bond market, but around the world. Germany’s 10-year rates plunged to a new record low well below zero. The UK yield curve is around its flattest level since the Great Recession, while Canada’s yield curve has already reached 2007’s level of inversion.

Implications for Gold
The bottom line is that the yield curve has inverted again. It should add to the fears of recession, which be a tailwind for the yellow metal in the near future. Indeed, as the chart below shows, the gold prices rose on Monday to their highest in more than two months. It seems that worries about a global recession – fueled partially by the trade wars – pushed investors into the safe-haven assets such as gold.

Chart 2: Gold prices from May 31 to June 3, 2019.


Should we press the panic button? On the one hand, an inverted yield curve has preceded every U.S. recession since WWII, so we should not assume that this time will be different. On the other hand, the quantitative easing and other central banks’ interventions in the bond markets could really diminish somewhat the predictive power of the yield curve. Other recession indicators (including differently measured yield curves) do not blink red, at least not yet. And the inversion is caused by the 10-year yield falling rather than the 3-month yield rising.

So we do not send a Red Alert yet. We will examine thoroughly the newest inversion of the yield curve in the next edition of the Market Overview and let you know our verdict on the issue! As for now, the precious metals investors should become more cautious, that’s for sure (but they should not panic!). If the yield curve is still an indicator to be trusted in our age of expanded monetary policy toolbox, we are likely about four – six quarters from the US recession. If we are on that gloomy path, that helps explain gold’s increasing appeal. The important word here is – if…

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in