RE: Crazy day27 Feb 2021 02:27
I'm with bonker99 on this one, although I think timescale of a turnaround will be over months rather than weeks and it will get more volatile. Yields are rising in anticipation of inflation coming soon (which I feel is misjudged but that's besides the point)..
It's about "the perception of inflation not necessarily the reality". Markets are pricing in a significant rise in inflation over the next couple of quarters and rising yields are bad for stocks, borrowing costs and mortgage lenders. It's a signal of the market 'tightening' and so liquidity in risky investments or those with ridiculous sky high valuations (tech, pharmas etc) will be squeezed. I believe we are seeing mass selling of paper positions to cover losses elsewhere which is what happened last year when gold was beaten down to around $1450/oz over a matter of weeks before it jumped 50% to highs of $2090/oz a few months later.
It's ironic that the market is betting AGAINST Fed Head Jerome Powell who just this week was pushing back against the idea that high inflation is coming. In his speech he suggested that broad signs of inflation have not been present in the real world, and that if they do occur any such rises would be "transitory".
Commodity inflation has been rampant, oil is approaching the highest since 2018, copper is at an almost 10-year high etc but this is not the same as consumer inflation. Markets expect consumer inflation will pick up as economic growth returns. In essence this is a problem of the Fed's own making with the market's overconfidence in the recovery being driven by mass stimulus. Imagine feeding a recovering heroine addict sugar puffs swimming in morphine. No wonder they are on a high!
The reason gold should hold value is that stocks have nowhere left to go but down, especially if markets are confused or undecided about where inflation and rates are headed. Small shifts in yields could cause tech investors in particular to take profits and because the Fed are against raising rates (regardless of short term inflation) gold and silver will once again draw new buyers, especially if cryptocurrencies tumble.
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