Thursday, May 16, 2013

The message of Treasuries and Gold

Notwithstanding the relative strength Treasuries exhibited yesterday in the face of lower than expected PPI data, Uncle Sam's debt has taken it on the chin in recent weeks.  Here's the iShares Barclays 20+ Year Treasury Bond ETF:

(click on chart for larger image)
 
Yesterday's candlestick is representative of the wild price swings during the trading session. 

At the same time, gold continued to be ravaged.  Here's a daily chart of the spot price:

(click on chart for larger image)

Treasuries are forecasting better economic times and Gold is forecasting disinflation.  This is arguably the best of all worlds.

If this is the wrong signal then Treasuries will either resume their rally (meaning the economy is flat lining or deteriorating) or gold should start appreciating, validating the other possible message of Treasuries: that they are pricing in inflationary expectations.