What is gold trying to tell us?

Since hitting a low price of about $1,823 in October, gold futures have rallied to over $2,100 as of yesterday.

Over the last three days, gold futures are up over $90, and at last check as of about 9:35 am ET, they are up over $10 today.

So what gives?

Have a look at this chart…

The black bars are the gold futures, and the red line is the 10 Year Treasury Note.

Both markets hit a peak in mid-2020.  Gold had been rallying since mid-2018 as the Fed reversed its rate hikes, which had weakened a still fragile economy.

Then Covid hit and the money printing began which resulted in the big rally in treasuries and gold into mid-2020.

Gold had quickly priced in the inflation that was to come, and the 10-year began to anticipate the needed rate hikes to slow things down.

As interest rates rose, and the Dollar rose with it, gold struggled to rally.   There was a mild rally in early 2022 as the Fed was slow to react to the inflation threat.

Once the hikes began, both gold and the 10 year note began to decline in price, and treasury yields rose accordingly.

Since early 2022, the two markets have moved in unison.

While the 10 Year Note has continued its overall trend lower in price, each rally and decline has coincided with a rally and decline in gold prices.

And now gold futures are appoaching their 2020 highs.

When you look at a daily chart going back to late 2022, you can see the strong correlation.

And, it appears that gold futures are LEADING the 10 year note.

So, what does all this mean?

Gold is typically used as an inflation hedge.  Investors buy gold when they think there is a risk of future inflation, OR when they think the value of the Dollar is about to take a hit (basically the same as inflation).

On the other hand, treasury prices will typically rise if inflation is perceived to be heading lower in the future OR there is a perception that the economy is about to slow.

My guess is that the gold market is beginning to price in the idea that the economy is going to slow and the Fed will need to cut rates.

When the Fed cuts rates, the Dollar tends to trade lower against other major currencies.  Thus, the rally in gold.

The treasury market seems to be picking up on the idea of economic weakness as well, as 10 year note prices bottomed in October.