Economic guru Dennis Gartman is warning savvy investors that an unusual trend between gold and bonds could be about to break “violently.”
Gartman explained to CNBC that there is an unusual trend of gold and bonds moving in the same direction over the past several years.
He predicted it can't last because gold is an inflation hedge and bonds are a hedge against falling prices. Historically, they move in opposition with each other, CNBC.com explained.
"I would bet that they both move violently in one direction – gold breaking to the upside [and] bonds breaking to the downside," Gartman told CNBC.
Rising U.S. interest rates tend to boost the dollar and push bond yields up, putting pressure on the greenback-denominated, non-yielding gold.
"If you go back over two years, five years, ten years, 15 years, 50 years, 100 years, they cannot move in the same direction," Gartman said. "Gold is always going to be a bet on inflation or deflation – whichever way you want it to be," he said.
Gartman wasn’t sure just when the walls might come tumbling down among unsuspecting investors.
"Maybe this week it's happening. Maybe this month it's happening" Gartman warned. "When it happens, it will happen violently, and the major long-term multi-decade trade will once again reassert itself."
Gains in oil and copper drove a gauge of commodities to a six-month high as Treasuries fell after Federal Reserve Chair Janet Yellen suggested gradual rate increases are warranted despite soft inflation, Bloomberg reported.
Yellen said on Sunday her “best guess” is consumer prices will soon accelerate after a period of surprising softness, a forecast echoed by European Central Bank President Mario Draghi and Bank of England Governor Mark Carney. A host of Fed speakers and the publication of the Beige Book this week may provide further clues about the U.S. policy path.
Meanwhile, gold turned lower on Monday, pressured by profit-taking after extending gains above the $1,300 mark to a three-week high amid ongoing tensions over Iran and North Korea as well as recent weak U.S. economic data, Reuters reported.
Spot gold was down 0.6 percent at $1,296.51 an ounce by 2:35 p.m. EDT (1835 GMT). U.S. gold futures for December delivery settled down 0.1 percent at $1,303. Spot gold has been rebounding since touching a two-month low of $1,260.16 on Oct. 6, lifted by worries about North Korea and a weak dollar.
"You're seeing a little bit of profit-taking," said Bob Haberkorn, senior market strategist for RJO Futures in Chicago. "There's a reluctance to take too much off the table because
of some of the geopolitical risks that are out there."
"Last Friday we had a rather disappointing CPI number, which further enforced the view that there's no need for the Fed to be very aggressive in terms of rate hikes," said analyst Carsten Menke at Julius Baer in Zurich.
Geopolitical risks, including over Iran and North Korea, are likely to persist this week, Jeffrey Halley, a senior market analyst with OANDA, said in a note.
"This should all combine to ensure that gold maintains a safe-haven tone this week," Halley said.
(Newsmax wires services contributed to this report).
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