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It's not that investors in gold and bonds cannot be both right on inflation. It's that they are not talking about the same thing. Gold does talk about inflation (better, debasement), bonds only talk about perceived central bank targets.
https://www.ft.com/content/8be4c545-e78a-4534-a149-9031b9991e67 #bonds #markets
https://www.ft.com/content/8be4c545-e78a-4534-a149-9031b9991e67 #bonds #markets
Ever since the central banks started to decide what long bond rates should be (or at least what they should be allowed to be) their usefulness as economic signals have vanished. Or even become counterproductive.
If anything, keeping long rates low sends the message that there will be no inflation, and the resulting consumer/corporate reactions could make it self-fulfilling.
This is the opposite to what bond issuers (especially governments) need, from the point of view of revenues (or expectations thereof). But if rates are allowed to rise, at a time of significant borrowing needs, debt servicing would be compromised, from the point of view of costs.
If bond rates are not going to be allowed to rise, even if economic activity/inflation rebound, their usefulness as a hedge also evaporates, partly to the benefit of gold, which does not have the same “limitations”.
And bonds, unlike gold, also have solvency risk. If the economy/inflation worsens the threat of non-payment/restructuring becomes real.
If the economy improves. it's not clear that the mix of inflation/real growth will be positive for both investors (don’t like inflation) and issuers (like inflation). Finding an environment that is good for both (the only one that works for investors) may be the real problem.
