The concomitant surges in the dollar prices of gold and the US treasury note seem to have got many market participants scratching their heads. For isn’t gold an ‘inflation asset’ and the treasury note a ‘deflation asset’? Aren’t they supposed to be antagonistic to one another? We square this price action by noting that the means of the currency skeptic are distinctly peculiar in this post-Bretton Woods experiment — it matters that the Federal Reserve note is by and large ‘backed’ by US government securities and gold. That being said, our hunch is that this price action is a relatively temporary phenomenon; for whereas gold remains intact regardless of an increasingly precarious stock of irredeemable claims upon it, US government securities do not. We believe that the current tolerance of the US bond market should be regarded as the last gift from above. Here I outline why a world with an intolerant bond market might not be that pleasant. continue reading »