The relationship between gold and bonds could be on the verge of going bust.
Dennis Gartman, the man dubbed the “Commodities King” by investors, is tracking an unusual trend showing gold and bonds moving in the same direction over the past several years.
He predicted it can’t last because gold is an inflation hedge and bonds are a hedge against falling prices. Historically, they move in opposition with each other.
“I would bet that they both move violently in one direction – gold breaking to the upside [and] bonds breaking to the downside,” said The Gartman Letter Editor recently on “Futures Now.”
If the trend ruptures, bond investors could be in trouble.
The Federal Reserve is slowly lifting its fed funds target rate, which has been holding steady for years at historical lows. It could be partly behind this anomaly. As interest rates rise the value of the bond declines.
“If you go back over two years, five years, ten years, 15 years, 50 years, 100 years, they cannot move in the same direction,” Gartman said. “Gold is always going to be a bet on inflation or deflation – whichever way you want it to be.”
However, his timeline for a breach is uncertain.
“Maybe this week it’s happening. Maybe this month it’s happening” Gartman warned. “When it happens, it will happen violently, and the major long-term multi-decade trade will once again reassert itself.”
