Why Are Gold and Commodities Positive Amid Rising Long-term Yields?

Why are gold and commodities up and stocks under pressure as long-term interest rates rise?

Because, this…

The 10-2 yield curve is threatening to resume steepening. The uplift from the secondary deep inversion last summer is currently indicated to be happening under inflationary pressure. We know this because 10 and 30 year Treasury yields are rising in relation to the 2 year Treasury yield. Today, long-term yields are up and the 2 year is basically flat.

I often talk about how gold should not be lumped in with cyclical commodities and inflation trades, and it should not, under certain (cyclical) circumstances. But in the circumstance of a steepening yield curve, which among other things would indicate inflation that is less beneficial to the economy, gold sure can perform well. That is because inflationary pressure is indicated to be working toward a counter-cyclical outcome.

As for the stock market, it’s technicals are not at all broken on this little correction. But the above is a microcosm of what could happen in larger form later on. Hence, our theme that the bull can continue while fanning out to include many more (non-Goldilocks) sectors, segments and asset markets. At some point though, a steepener, whether it remains inflationary or per may favored view, morphs deflationary, will be damaging as an economic counter-cycle ensues.

My story, sticking to it.

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