Authored by James Rickards via DailyReckoning.com,
Are gold prices and interest rates joined at the hip? Based on recent market action, it would appear the answer is: yes.
A major rally in gold is now underway. Gold moved from $1,831 per ounce on Oct. 6 to $2,091 per ounce on Dec. 1, a 14.1% rally in just eight weeks and a new all-time high price for gold.
Gold has pulled back to $2,037 as of today, but that’s not surprising given its previous surge. Like every other asset, gold can sometimes get ahead of itself and experience a pullback. Importantly, it’s still holding firm above $2,000.
This rally correlated almost perfectly with the rally in 10-year Treasury notes that occurred at the same time. Treasury note rates plunged from 5.00% on Oct. 19 to 4.17% as of today. That 83-basis point drop may seem small but it’s not.
That’s like an earthquake in the world of Treasury notes. As explained below, market signs indicate that these dual rallies and close correlations will continue for months to come.
This dual rally gives investors a double-barreled opportunity to make huge gains.
DVO1: A Quirk of Bond Math
As interest rates drop, the market value of Treasury notes goes up….
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