10Y gold

‘After All, Populism Is Inflationary’: The Case For A ‘Gold’en Tail Hedge

"After all, populism, protectionism and deficit spending are all inflationary."

Ok, pay attention because Aleksandar Kocic is droppin’ some knowledge on a Tuesday which, at least in our experience, is pretty early in the week when it comes to updates from Deutsche Bank’s resident genius.

If you’ve somehow missed Kocic’s latest efforts, please do yourself a favor and get familiar with the best analyst on Wall Street via these two recent posts:

Today’s note is pretty straightforward.

Ultra-accommodative policy was viewed as inherently inflationary and so, “the more the Fed pushed real rates into negative territory, the higher the bid for gold was [hence] the logic behind a negative rates/gold correlation”:


Ok, now see how the correlation has moved sharply more negative even as the Fed has begun to roll back the accommodation? Any guesses why? Here’s Kocic:

As stimulus unwind began, the bid for gold softened as a rates rise was the effect of a higher real rate, rather than wider breakevens.

Now, what do you imagine is going to happen on the off chance inflation expectations finally pick up? Well, if a bond sell off is catalyzed by rising inflation expectations then gold would be bid. Or, in short, “these correlations would change sign quickly.”

Of course with cross-asset vol. scraping its knuckles on the floor, tail hedges are cheap.


As for why you should believe that ever-elusive inflation will finally make an appearance, Kocic has a simple answer:

After all, populism, protectionism and deficit spending are all inflationary.




2 comments on “‘After All, Populism Is Inflationary’: The Case For A ‘Gold’en Tail Hedge

  1. Irb says:

    Gold and gold stocks aren’t doing anything more than a bear rally, until the gold bugs finally throw in the towel. Then I will load up.

  2. jbond says:

    Clearly the hot money is still on the sidelines based on gold equity action. Still it appears a quiet accumulation is in progress.

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