It's tough to find a period in recent history where geopolitical events have pushed gold in opposite directions to other financial market variables for a long period of time. But it is noticeable that while real interest rates have continued to rise, gold has continued to climb regardless.
When looking at gold vs. the US dollar, its also notably high relative to the current level of the trade weighted index, although it is still well down on levels seen earlier in 2013.
When combining these two variables in a simple regression model of the gold price there is a marked divergence between modelled prices and the more recent reality.
This is perhaps partially related to events in Syria, particularly in more recent days. The risk is here is that as events become clearer, the uncertainty premium attached to gold will probably fade.
But perhaps gold is also telling us something that other markets are not. The last time the model diverged from actual was when gold prices collapsed in April. This actually served as the precursor to the large sell-off in bonds seen in the following months.
Could the opposite be true this time around? Its certainly plausible that gold investors are less hawkish about the prospect of tapering given the recent run of data.
Either way, it makes sense that the recent divergence should narrow. For me, it seems the sell off in bonds is more likely to reverse than the recent strength in gold.
