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

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”:

RatesGold

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.

RatesGold2

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.

*******

 

 

Advertisements

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

  1. 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.

    Like

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

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s