We have been noticing an interesting anomaly over the last couple of months. Gold and U. S. bonds have both been rallying. Mark Hulbert, founder of Hulbert Financial Digest has noticed it too. He commented on this phenomenon in an article “Who Will Blink First?” on October 7.
In theory, this should not be happening, since what is good for gold (purportedly an inflation hedge) should be bad news for bonds. If nothing else, this points out that trend following may be more useful than only following the fundamentals. In the article, Mr. Hulbert suggests a couple of explanations for both markets being up at the same time. In the long run, however, it seems likely that one of the markets will crumble. Based on contrarian sentiment analysis, Mr. Hulbert favors gold to be the ultimate winner. (We’ve also talked about the possible bubble in the bond market many times on this blog.) This may well be correct, but I am just going to let relative strength sort it out for me.
