With the recent fall in gold, silver and crude and the strength in the USD Index the deflationists have crawled out of their cobweb hollows/dens as determined as ever to put forward that the US is locked in a deflationary spiral.
We find it hard to accept a deflationary scenario when inflation premiums on the US 5, 7, 10, 20 & 30 year treasuries are more or less at multi-week highs! In addition commodities as a whole (as per the old CRB Index now referred to as the CCI) are within a few percent of a multi-week high.
So why the divergence between crude and precious metals, and the broad commodity group and inflation premiums of TIPS? We don’t know for sure, perhaps it is merely a reflection of too many weak hands entering long positions in gold, silver and crude and bearish positions in the USD Index and that what we are observing now is merely a consolidation. If we are missing something then please enlighten us with your wisdom.
We believe that if the weakness in gold, silver and crude was “genuine” (by that we mean the start of a significant move to the downside) then it should have already showed up in inflation premiums and the broad commodity group and perhaps also in junk grade bonds.
US 10 Year Forward Breakeven
Continuous Commodity Futures Index (old CRB)
The market always does its best to throw trend traders of its back as soon as a trend becomes too obvious. At $80 in crude and $1200 perhaps the trends in crude and gold were a little too obvious!
