Have you reached gold?

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Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.

Good day. Walmart’s CEO warned yesterday that tariffs would force him to increase prices this year, even after the recent decrease in tasks in China. The retail giant said the last quarter that he did not know how many rates would affect the main business. It seems to know more now, and the news is not good for consumers. Send us an email: robert.armstrong@ft.com, aiden.reiter@ft.com and hakyung.kim@ft.com.

Gold

The other day in the podcast without collecting, I speculated that perhaps gold, which reached the amazing level of $ 3,250 a few weeks ago and has diverted from the side since then, could have put in its maximum long term. My reasoning for this is shamefully simple: we have reached the anxiety of the maximum rate, and perhaps Trump’s maximum anxiety, and the price is really high.

My colleague Toby Nangle listened to the podcast and sent this picture of the latest survey of the Bank of America Global Fund Administrator:

The highest proportion of managers in the survey believes that gold is overvalued: almost 50 percent (light blue columns). But that is not the interesting part. The interesting thing is that the last twice that many managers agreed that gold was overvalued, in 2020 and in 2011, they were right. Look how gold worked later (dark blue line). After the 2011 fall, Gold took a decade to resume its maximum in nominal terms.

In general, when he asks a group of investors if something is undervalued or overvalued, and a lot of them agree, what he should do is run to the other side. A deep consensus can only do two things for the price of an asset. It can remain as it is (without price movement) or can be reversed (the price goes against the old consensus). There are simply not many people out of the main view that remains to become, which makes consensus fall on themselves, rewarding those who were against the grain. However, the feeling of investors has tended to be well with gold, and I don’t know why.

Hamad Hussain, capital of Economics, agrees that consensus can also be correct this time, and gold could be attentive for a while. He points out that the last two demonstrations (1976-1982, 2008-2012) lasted three or four years, and with that standard he is beginning to age. And his team expects the dollar to recover in the medium term, which would be a wind against. He also points out that Golden ETF tickets, which, at a break with history, have not been a great taxpayer to this rally, are now increasing. Key marginal buyers in the rally have been institutional buyers, especially in Asia, as well as central banks. But ETF buyers are mostly financial buyers in the West, who are sensitive to things such as the strength of the dollar and real interest rates of the United States. If financial buyers are in charge, these factors will be affirmed again, potentially to the detriment of gold. Here is the quite dramatic graph of Hussain:

The price of gold is difficult to understand, but it always seems to be saying something interesting.

Inflation expectations

A month ago we observed that although long -term inflation expectations were stable and did not contribute much to the increase in bond yields, short -term inflation expectations (measured by inflation swaps) increased rapidly. Tariff concerns seemed to translate into expectations of a brief explosion of inflation, but not increased prices. Markets may have expected that rate induced by the rate is transient, or a slowdown of growth that matches inflation, or both.

That trend has been reversed, partly. Longer -term inflation expectations (pink and blue blue lines) have occurred since mid -April, and short -term expectations (dark blue line) for inflation fell dramatically after the Trump administration was reduced in China’s rates:

It is clear that the lower tariff perspective in China, whose cheap goods help keep the prices of the United States low, is causing markets to degrade their short -term price expectations. Good. The increase in longer term expectations is also good, at least to the extent that it reflects better growth expectations. The American economy is still quite strong, and without the rates shock absorber, it could remain like this. Standing seems to be leaving the table.

But this also raises questions for the market and, crucially, for the Federal Reserve. In April, we were quite concerned about short -term inflation. Now that fear is changing in the long term. As the Fed constantly indicates, a key metric in its rate of rate are long -term inflation expectations. If they are under control, the Fed has more flexibility for lower rates. If longer -term inflation expectations continue to increase, crawling towards 3 percent, the Fed may have to keep the highest rates for longer, even if there is weakness in the labor market.

And there are reasons to think they will continue to increase. The long -term inflation expectations are around where they were just before the “Day of Liberation”, but tariffs are much higher today than April 1 (a 30 percent rate will still be felt on China, as Walmart just pointed out). It is possible that before the “day of liberation” the market will wait even worse; Trump floated 10 percent of global tariffs, and 60 percent in China during the campaign. The market may also have bought the “taco” trade, and believes that the rates will soon be lower. However, if 30 percent are locked in the long term, inflation pressures could increase along the curve. And we were already in a growing trend:

Observe the change of passage after COVID-19. This is what Fed has been fighting for almost three years: greater inflation expectations, as a result of strong growth and prices jump in 2022. The bond market believes that we are still in a regime of greater inflation, potentially in the long term.

The bond market knows nothing that the rest of us do not. It will not form a firm opinion about inflation perspectives until the rates policy is clarified. If you ever do it.

(I reiterate)

A good reading

Gene edition.

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