There is a sell-off in gold, but it doesn’t make sense.

Gold has rallied strongly because of the stimulus is supposed to create so much money that inflation is all but inevitable. Gold is supposed to offer the ultimate anti-inflationary insurance.

It’s funny, because with factories having tons of spare capacity and the labour market being characterized by tons of ‘spare labour’, you can’t really say that inflation is around the corner.

However, when the economy shows signs of life with a surprising jobs report and falling unemployment, what happens?

Gold sells off.

This is curious. That inflationary environment has just brought forward, and that’s exactly how the bond market has taken it (with a big sell-off taking rates higher).

Or could it be that the big inflation scare was always that, just a scare. Could it be that when the economy recovers, the FED and other central banks will reverse the stimulus and money creation, and raise interest rates, so that inflation won’t take off?

This is in fact what we’ve always said would happen here, and the market reaction seems entirely consistent with that, higher rates, lower gold.