Gold prices fell Wednesday after US retail sales for January crushed expectations. The upbeat economic data pushed the US Dollar higher which acted to the detriment of gold and other precious metals such as silver. Treasury yields pulled back from their recent pre-pandemic highs. The 10-year yield hit 1.331% before moving lower.

Investors are ditching government debt concerns as President Joe Biden’s $1.9 trillion stimulus package moves closer to reality. House lawmakers are finalizing the relief package, with a vote expected next week, according to sources cited by the New York Times. While Republicans have pushed back against the package's dollar amount, Democrats appear to have a path to pass the enormous package.

In line with conventional economic theory, the expected increase in fiscal support is translating to higher inflation bets. However, gold prices – which typically act as an inflation hedge – have not risen as the reflation theme gains steam. In fact, XAU/USD is looking to break multi-month lows if the current trend continues.

The correlation between gold and inflation expectations broke down in early November. One doesn’t have to dive into nuanced economic theory to search out possible explanations for the decoupling. One possible reason is that investors are betting that the economic rebound will benefit other assets, such as equities and industry-related commodities, versus gold regardless of rising inflation bets.

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The attitude is demonstrable among various asset classes. Silver highlights investors’ propensity to find returns among precious metals inclined to benefit most from an accelerating economy. Per the above chart, November highlights gold’s breakdown versus inflation bets. That decoupling appeared when President Joe Biden's election victory became clear. It should also be noted that precious metals, like gold and silver, are non-yield assets. Rising Treasury rates are slowly eating away at XAU and XAG’s advantage in a practically zero-interest-rate environment.

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That said, silver prices have continued to track alongside increasing inflation bets. One likely reason is the higher reliance on silver as an industrial metal. While gold has applications, silver is used more heavily in manufacturing and industry. Hence silver’s outperformance versus gold since November. Investors are laser-focused on the economic rebound and those assets which will benefit most from the recovery. Inflation is likely well on its way but gold isn’t listening, at least for now.