As a piece from the Economist last week discussed, the markets can't seem to make it their minds: is the world becoming more inflationary (which means you should buy gold)? Or are the recent deflationary trends here to stay (which means you should buy bonds)?
As it turns out, both gold and Treasury bonds are rallying, so it is hard to draw any definite conclusions from the market. Here's what the Economist concludes:
Perhaps the explanation is simpler. Martin Barnes of Bank Credit Analyst, a research firm, points out that the direction of official policy (low rates, quantitative easing, big deficits) looks inflationary but the economic fundamentals (a big output gap, sluggish credit growth) look deflationary. Faced with this dichotomy, investors who buy both Treasury bonds and gold are not displaying cognitive dissonance. They are just hedging their bets.
Buttonwood: Something doesn't fit | The Economist
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