Decoupling of Investment Vehicles

Gold, Bond / Gilt, Stocks

Last 2.5 decades since 1990

10-year US Treasury prices came down by 70%

- Gold prices gone up by 3.75 times, generally follow the trend of QE, rising over the period from US$400 in 1990s to around US$1800 around the peak at 2012.

- Stocks : increase 6-fold between 1990 and currently. Trend up along the period of US expansion in money supply due to imbalanced expenses after Vietnam war, sub-prime mortgage and QE.

Trend starting 1990

Bonds are kept at low level, US interest rate was falling or remain low for the whole period. Bonds serve as sponge after QE and reversionary operation started.

Gold trend goes up following QE but recently consolidating and momentum is going up again. I believe gold will go up in the future medium term - to explain reasons later.

Maybe with interest rates rising (though slowly), bond prices will be coming down slowly. Bond cant serve as sponge but QE literally slowed down or largely not important or effective for the medium term. Therefore, the excess liquidity will be generally limited, with bond serving as sponge not too important. At the same time, Bond prices coming down will obstruct it serving as sponge. This leaves some excess to be taken up by other vehicles in the market. Some inflation expected.

Interest rate not increasing fast, bond prices dropping, inflation rising slowly. Gold will be on upward trend due to lower magnitude of changes in US Dollars, interest rates and bonds.

The key word is the magnitude of changes amongst different vehicles.

Decoupling - Gold, Bonds/Gilt, Stocks

reasons being the relative magnitude

Medium Term outlook - if Fiscal Policy works well

Commodities price goes up

Gold price goes up

Stocks price for some of the commodities stocks will go up, but others stagnant or come lower

Fiscal policy - stronger US Dollars & Yuan

Fiscal Policy will affect currency strength by itself and relative to others.

In lieu of currency depreciation as in QE, those major powers such as US Dollars and Yuan leading the world fiscal policy will increase relative currency strength in the medium term to avoid flight of currency and to maintain strong fiscal power in lowering import costs.