The desirability of cash is the yield on the 10 year US Treasury Bond. If our country's creditors decide we cannot pay our bills the yield we must pay on our debt rises. If we don't want to buy anything from our foriegn creditors, our anything at all for that matter, prices deflate and causing the price of cash to rise. Cash becomes more valuable. And since more people need to store their cash somewhere, they put it in bonds causing the yield on Treasuries to go down.
Now, rising gold signifies a depreciating dollar. Cash becomes less valuable and people put their money into hard and soft assets like gold and stocks.
Today, gold rose and Treasury bond yields fell. This is illogical. I'd like to propose two scenarios. Either the government intervened in the bond market ("quantitative easing") or the pullback was natural. Stocks and commodities have risen more or less the same amount since the Thanksgiving bottom. This rise in asset prices has caused mortgage bond investors to insure themselves against the possibility that inflation could take off and the Fed would have to withdraw some of its support to the market by raising interest rates. The investors hedge by selling the 7 or 10 year Treasury bonds. In the last two weeks there has been a rush to do this causing a 0.75% rise in Treasury yields. This is dramatic.
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