I remember when Keating floated the dollar many people did not understand the consequences and many businesses went out and borrowed overseas in the belief the interest rates were lower. Financial advisors of the time obviously lacking an understanding of economics promoted the cheap rates. The did not take into account the falling $Au and many businesses went to the wall because the could not meet the repayment value given the dollar depreciated. Same thing may happen with a rising yield if the $US dollar falls in comparison to other key world currencies. Europe traditionally rushes to the US dollar in tough times. Note the DAX is rising and both Japan and China are not reducing money supply. Germany would not contribute to arms for the Ukraine. Interesting? It seems there are long memories when Germany had to wait 5 years to have its gold repatriated from the states when it was first refused during the GFC. Later there was also a takedown of the Euro. The outcome of which assisted money flow to the US and higher demand for $US. Then you had Brexit. European BIS membership appears to have outvoted London and New York and sided with Russia and China who were pushing for a basket of currencies inclusive of gold for use as international reserves. Russia supplies Europe with gas. As Kissinger said, there are only interests. London used to do the daily gold fix which was communicated to New York. Yet to see what will happen here with new BIS rules.
Normally, rising yield attracts funds away from gold but the gold price through history rises back to long term trends. Maybe last year's 10 bond rate for a short period assisted the COMEX to reduce physical liability for paper claims? Inflation was officially said to be transitory and of course the bond rate fell and gold went up. Interesting timing with BIS rules? Now of course, the Yellen said inflation is higher than expectation and the bond rate would have to rise. Yet the FED did not raise last meeting only threatened to again. Instead the offset could be seen by some as a rotation in the DOW etc given the media hype of a crash rather than a correction.
But how much wriggle room was there? The 30 year US bond rate has been falling and is a structural predicator, not so much the 10 year bond used in open market operations. On the long trend, the value of the $US has also been falling. From an economic point of view, there is a point where quantitive easing without the velocity of money domestically going into production or overseas influence to prop up the domestic economy, it becomes problematic for government to pay yields from tax revenue. The money printing has inflated share markets and not driven consumption which generates revenue. The domestic spending has shrunk with the pardox of thrift. People are saving to pay for essentials due to Covid in the States. This is evidenced by the PE/ Equities ratios of many companies. High equity price and lower yield. Future borrowings would create a catch 22 with more inflation. Perhaps the only way out is to devalue and increase domestic income to call forth domestic production and by selling goods and services overseas. But the competition is pretty hot now. That market share has shrunk.
The outcome for a falling $US may well be a rising gold price in US dollar terms. So its easy to why many in the US are predicting $2000+ gold. Those who have cashed out with the fall of the DOW and the tech heavy NASDAQ will probably look for yield in countries like Australia who have the commodities in demand for the rest of the world to combat climate change. e.g. Lithium, copper, cobalt, nickel, uranium, zinc, manganese vanadium to mention some on a long list. Money knows no boundaries. Hence the significance of Japan, South Korea, Taiwan, Indonesia, India, Thailand, Vietnam, Philippines etc. for trade and defence co-operation. Huge populations. All in my opinion as to interpretation. The rain will stop when the storm goes. Difficult times. Gold looks a sound bet. GSR will do nicely as a producer. Just my ramblings.
Expand
