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Long time gold bull, David Rosenberg, is pulling in his horns.  In this morning’s note he said:

It would seem as though investors are putting down their money on a big inflation bet.

  • Gold is up 20% this year alone.
  • The gap between the long bond yield and the 10-year note yield has widened to an eight-year high of 129bps from 92bps just six-months ago.  This is the third highest spread in the past three decades.
  • Since the end of August, 10-year TIPS breakevens have risen from 1.5% to 1.8%.

I’ve made my position on inflation pretty clear. In the long-term I firmly believe gold is headed in the direction of an irrational bubble as investors misinterpret the Fed’s actions as being inflationary and they continue to view the Euro as a condemnation of fiat money. It’s also clear that, in the near-term, investors are voraciously buying up anything and everything as a hedge against inflation and a falling dollar. Investors believe the Fed can generate inflation and economic recovery via quantitative easing. I believe this is highly flawed thinking.  In the near-term, I have to agree with David Rosenberg.  However, any significant pullback is likely to present a buying opportunity as economic weakness persists and government’s continue to meddle in markets.

Source: Gluskin Sheff

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