Bonds Analysis by Steve Saville covering: XAU/USD, Gold Futures, United States 30-Year. Read Steve Saville's latest article on Investing.com
ratio is a pictorial representation of this relationship. At least, it was not until about two years ago that a major divergence began to develop between two quantities that previously had been positively correlated. Does this mean that the age-old relationship no longer applies?
The risk-free US interest rate that is least affected by the direct manipulation of the Fed is the yield on the 30-year T-Bond, so what we should see is a positive correlation between the commodity/gold ratio and the T-Bond yield. Or, looking at it from a different angle, what we should see is a positive correlation between the gold/commodity ratio and the T-Bond price. That’s exactly what we do see.
This is a global phenomenon, not a US phenomenon, but evidence in support of this can be found in the following chart of US. The chart shows that nominal US retail sales were only about 3.5% higher in May 2024 than they were two years earlier. Over the same period, the USrose by 7.5%, so in real terms, the dollar value of US retail sales has fallen over the past two years.
That is, trends in the T-Bond yield no longer reflect trends in the risk-free interest rate due to an expanding risk premium in the T-Bond yield associated with an increasingly profligate government. This, by the way, is one of the reasons why anyone who predicts that Treasury yields are going back to anywhere near their 2020 lows will be wrong.
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