The U.S. 10-year real yield hits its highest in over a decade
While the U.S. 10-Year real yield is at its highest level since 2010, gold remains uplifted. Despite this outperformance, the pair should reconnect again.With gold and mining stocks enjoying oversold bounces on Sep. 27, the pace of the PMs' recent drawdowns was poised to normalize at some point. Also, since asset prices don't move in a straight line, daily declines of 1% or more often result in countertrend rallies along the way.
Moreover, while I've shown variations of this chart before, the long-term implications are profound. For example, if you analyze the left side of the chart, you can see that the U.S. 10-Year real yield soared and gold plunged during the global financial crisis . However, when the Fed launched QE and the U.S. 10-Year real yield sank to an all-time low, gold hit a new all-time high along the way.
To that point, with long-term Treasuries continuing their sell-offs on Sep. 27, the U.S. 10-Year Treasury yield closed at another 2022 high of 3.97%.More importantly, the U.S. 10-Year real yield ended the Sep. 27 session at 1.64%, its highest level since 2010. Therefore, my prediction has proved prescient, even though gold has been a relative outperformer amid the chaos.To explain, the U.S. 10-Year real yield is at its highest level in a decade-plus, while gold is relatively uplifted.
As such, we find ourselves in an identical situation now. While gold has outperformed the U.S. 10-Year real yield, the pair should reconnect once again; and with the Fed forced to play catch-up due to 40+-year high inflation, gold is much more likely to collapse than the U.S. 10-Year real yield. Remember, I wrote the Fed needs to push the metric above 0% to curb inflation.
However, while the USD Index closed well above its ~2017 high on Sep. 27, the yellow metal is much higher.To explain, the gold line above tracks the GDXJ ETF, while the black line above tracks the USD Index. If you analyze the right side of the chart, you can see that the junior miners' Sep. 27 closing price is much nearer the low set when the USD Index hit its ~2017 high.
"I had a sobering assessment that we've got more work ahead," Evans said."I'm optimistic that the peak that we've set out is going to be sufficiently restrictive that it could be enough."
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