Yield Curve Inverted Even More. Is It Finally Time For Buying Gold?

The U.S. yield curve extended its inversion. Everyone and their brother knows that recession must definitely be on the horizon. We are all doomed, so gold can only go up now, right?

Yield Curve Inversion Gets Larger

It’s getting more serious. On Friday, the yield curve inverted. This week, the spread between long-term and short-term rates has not only remained below zero, but it has dived further into negative territory. As the chart below shows, the difference between 10-year and 3-month Treasuries fell to -0.05 on Tuesday.

Chart 1: Spread between 10-Year Treasuries and 3-Month Treasuries from January 2019 to March 2019.

 

We are aware that many other interesting things are happening right now (take the fascinating Brexit saga, for instance), but the yield curve remains the hottest topic among investors with potentially enormous implications, so let’s continue our Tuesday’s deliberations and build on our analysis what the current inversion really means for the precious metals market.

To make a long story short, we are still not freaked out by the yield curve inversion and we urge gold investors to keep calm. Why? The key world is “macroeconomic context”. Let’s take a look at the chart below. It displays the yield curve and the unemployment rate, which is one of the most important macroeconomic gauges and recession indicators.

Chart 2: Yield curve (green line, left axis, spread between 10-year and 3-month Treasuries, in %) and the unemployment rate (red line, right axis, in %) from January 2000 to February 2019.

 

As one can clearly see, in two previous cases of the yield curve inversion, the unemployment rate was either flat or rising. But now, the unemployment rate does not send any evident recessionary signals which would make the gold bulls instantly happy. We can cite much more data that shows how the current condition of the American economy differs from the previous yield curve reversal. Actually, we have already done so in the March edition of the Market Overview. Here, we will present just one more chart, which shows the yield curve and the expected change in real income of households as calculated by the University of Michigan.

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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