A few months ago in a post titled, “How Bullish is a Bull Flattener?” we took a look at how bull flattening of the yield curve (when the long end falls faster than the shorter end) has tended to impact various assets. We concluded that bull flattenings generally coincide with weakness in growth and inflation sensitive assets like commodities, EM stocks and gold and are usually positive for the USD.
Given the weakness we’ve seen in gold over the last few days (it has fallen almost $50 in recent days) we wanted to provide an update to our chart showing the spread between 30Y-10Y US Treasury Bonds and gold. It appears that the long end of the yield curve and gold are still joined at the hip, meaning that a continuation of the flattening would be bearish gold and a steepening would be bullish gold. It goes without saying that a downside breakdown of either one of these series would call into question the growth and inflation outlook in the US and elsewhere.