Stephen Spratt

GOLD vs 🇯🇵2Y JGB YIELD overlaid on multi-year horizon & current breakout↑ Front-end JGB yields ← heavily influenced by 🇯🇵authorities: BOJ rate policy + BOJ JGB buying/tapering + MOF issuance shift to shorter maturities Gold ← influenced by 👆 After gold’s little dabble with being a risk asset in prior rally to ATHs, which was triggered by the “Takaichi Trade” & driven by NKY futures, gold’s mini bubble burst & price tanked. Subsequently, gold latched onto front end JGB yields, which had been relatively rangebound & trading sideways until Dec 1 - 2Y JGB yields spike into 1% handle & uplifts gold’s higher-lows, setting it up for another run to ATHs, which came few weeks later after Dec BOJ rate hike day when 2Y JGB yields broke into 2.1% territory And just fyi, despite consensus chatter, 2Y JGB yields aren’t breaking higher on BOJ rate policy itself (nor expectations of) - they’re moving on PM Takaichi fiscal policy developments: 12/1 jump on 2Y JGB yields >1% at 9AM market open isn’t due to “BOJ Ueda hawkish comments” that were barely hawkish & came at around noon, after yields had already moved. 12/1 🇯🇵AM open was the first chance cash JGBs had to react to MOF/Katayama’s 11/28 🇯🇵aftermarket release of the JGB issuance plan for Takaichi’s supplementary budget, for which the entire issuance amount will be packed into 🇯🇵T-bills, 2Y & 5Y JGBs, so as to avoid touching the oversupplied & fragile JGB long-end that blew up earlier this year The next 2Y yield spike → 2.10% move was once again not on/due to BOJ rate hike itself on 12/19 during 🇯🇵PM session & Gov Ueda press conf (which FX markets/JPY took as directionally dovish, i.e. yields “should be” ↓ not ↑), but rather on 12/22 🇯🇵AM open, in reaction to Takaichi announcing a last minute agreement w/ opposition party DPP & lifting the annual income tax exemption level with MOF Katayama, who is obviously supportive of the measure, also admitting it will be tough on the near term fiscal picture (but “worth it”). Cost of lost tax revenues due to this range ¥2~3tn annually on top of the ¥11tn supplementary budget that relies entirely on short-end JGB issuance So that’s what’s spiking front end JGBs, which are then spiking gold. If you watch 🇯🇵 news, you’ll see talk of how fucked 🇯🇵’s fiscal picture looks, with gold ETF commercial breaks in between Or - you can just stick with the “central banks buying” narrative & see how absolutely useless that “explanation” serves in understanding gold price action behavior in the short or long term

If you're trading rates/macro, it's important to think about global policy cycles. The transition between easing/pause/tightening is vicious. We're seeing this right now in APAC markets... Since mid‑October, 2‑year yields: KRW +51 bp, AUD +48 bp, NZD +34 bp.

Bessent tells Maria Bartiromo that the Fed's caution on further rate cuts isn't warranted because inflation isn't going to be a problem: "The decision to cut rates by 25 basis points, I applaud. But the language that went with it tells me that this Fed is stuck in the past. Their inflation estimates have been terrible so far this year. They keep coming down, inflation keeps coming down and their models are broken. And I'm just not sure what they're thinking here in terms of signaling that they may not want to cut rates at the December meeting. They've got a lot to answer for not only for this year but for many years past, both in their GDP estimates and their inflation estimates, which are consistently wrong. And we're going to find a leader who is going to revamp the entire institution in terms of process and inner workings."