With another record high in gold and the slightly higher than expected headline CPI reading, the implied inflation rate in the 5 year TIPS has risen 6 bps today to 1.55%, the highest level in 3 months. Expectations in the 10 yr TIPS are up 3 bps to 1.86%, the most since August 21st. One year ago pre Lehman, the 5 year implied rate was also around 1.55% (deflation was priced in during the Oct thru Dec time period). One year ago, 10 year expectations were about 1.95%. Going a bit further back for more perspective, before the world changed, 5 year expectations got as high as 2.73% and 10 year expectations were at 2.6% both in early July ’08 so there is thus room for higher implied inflation rates IF the move higher in gold is correctly discounting pricing instability in the future.

Category: MacroNotes

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5 Responses to “TIPS/gold”

  1. leftback says:

    Maybe TIPS and gold are peaking here, looking at oil it has already formed a rounded top. We could have another spike, but it seems unlikely, so as crude is the prime determinant of inflation, this may be as “hot” as inflation gets. For the time being…. looking at wages and hours it is just difficult to see where inflation can gather steam. What we are looking at in the US is merely engineered inflation created by printing resulting in the DGDF trade.

  2. The gold contract still has some life in it and now that Indian mourning time is done, Indian traders may enter the market looking for one last push heading into their festival time (which is a time for gold giving in their country according to custom).

    I’d wait another week at least before I’d expect the fundamental reasons behind this rally to cut off the power to the push. OpEx may have something to do with it too but that would probably be downside pressure considering we have come up a long way in a lot of the gold stocks and indexes this quarter

    I would think a close in new record territory is now close to achievable. This current rally is more about gold fundamentals than dollar weakness though the dollar certainly has contributed to the rally

  3. leftback says:

    The 30-yr implied inflation rate at 2.21% seems optimistic.

  4. Maybe they’re measuring by the expected Dow return over that time :mrgreen:

  5. Pat G. says:

    @ leftback

    The CPI, TIPS and Treasury numbers are manipulated by the USG. In other countries around the world, central bankers manipulate their numbers that also gauge inflation. Can you trust any of them? No! Sometimes, rather than looking at numbers it’s better to trust your “gut feeling”. I believe that is what billions of people around the world are doing…right now. There is NO WAY that you can print money, monetize it, have ZIRP, prop up industries, companies, housing and consumers and not have it lead to inflation. If they do somehow dodge inflation, than they will make Houdini look like a piper. It would simply be the greatest magical trick ever performed.