But the macroeconomic environment changed and we live now in a world of stubbornly low inflation. In the past, strong economic growth came together with higher inflation and higher interest rates. The latter are affected by the expected interest rates that depend on the forecasted inflation. The former are shaped by the expected corporate profits which depend on the prospects for real economic activity. You see, the equity and bonds prices are driven by different things. However, the relatively optimistic stock markets and pessimistic bond markets do not necessarily mean a contradiction. We cannot, of course, exclude such a scenario (but the opposite might be also true). Who is right? Do bond markets know something that the stock markets do not realize?Ĭhart 1: S&P 500 Index (blue line, left axis, points) and the bond yields (red line, right axis, %, 10-Year Treasuries) from May 2009 to May 2019. The chart below shows the apparent divergence between the signals sent by the stock prices and bond yields. But bond yields are low, which seem to predict stagnation or global recession. It’s true that the stock prices are high, which indicates that investors continue to anticipate solid economic activity in the future. We all know that, unfortunately, all good things come to an end. history, while the general economic expansion will break historic record in July. After all, the bull market has already became the longest in U.S. No wonder that everyone asks the question whether the boom will continue. In such a macroeconomic environment, companies grow and generate positive earnings growth, so the stock market performs well. Stock market investors love the Goldilocks economy as it allows a market-friendly monetary policy, or it does not create reasons for the Fed to intervene and change its course. So, just as in a fairy tale, it is the economy which is neither too hot, generating inflation, nor too cold, creating recession, but just right. What is the Goldilocks economy? It is the economy which combines a moderate economic growth and low inflation. The reason is, of course, the Goldilocks economy we still have, to the despair oo gold bulls. Now, you might wonder why we refer to the story for children in the report on the precious metals market. For sure, you have – Goldilocks and the Three Bears is one of the most popular fairy tales in the Western world. And then she went to the porridge of the Little, Small Bear, and tasted that and that was neither too hot nor too cold, but just right, and she liked it so well that she ate it all up.
And then she tasted the porridge of the Middle Bear, and that was too cold for her. She first tasted the porridge of the Great, Huge Bear, and that was too hot for her. They have gone out, but the girl saw the porridge through the window, so she went in. One day she came to a house of Three Bears. For this reason she was called Goldilocks. There was once a little girl whose hair was so bright and yellow that it glittered in the sun like spun-gold. Once upon a time there was a Goldilocks (economy)…Would you like to know the end of this story? So let’s read today’s article – and find out whether it will have a happy end for gold!
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