10 yr note yield vs gold weekly

Tasuki

I hope this is a relevant question for SCAN: see attached weekly chart of the 10 year note yield ($TNX) vs gold ($GOLD). This is a sort of John Murphy intermarket relationship type question: why have the note yield and the price of gold started drifting lower together for the last year and a half, rather than going opposite, which is what they classically do? What caused this major change in their intermarket relationship? (and of course, what would it take to re-establish their normal inverse correlation?). Thanks, Taz

markd

Demand for the dollar drives yields down. The more people want your debt, the less you have to pay them to take it. As the dollar rises, the dollar price of gold (and other commodities) drops. The dollar is in demand because the Fed has stopped diluting the currency through QE - so if you are holding dollars, they are less likely to depreciate than the euro or the yen, and because Treasuries are still perceived as safe and yields are higher than the competition. It's hard to foresee right now how things are going to get back to "normal". The world has a huge overhang of debt which is potentially deflationary. Somehow that has to be worked off without anyone going into default. But investors are holding back from investing and banks are holding back from lending out of fear of regulation and taxation, so it's unclear where the growth is going to come from to pay off the debt.