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Gold is cheap

Gold traded at US $1,900 for the first time since January, after Federal Reserve officals talked down the “real” (CPI-indexed) yield of Treasury securities.

The market may not believe that inflation is transitory, as Federal Reserve Vice Chair Richard Clarida repeated once again Wednesday morning – but it believes that the Fed will stick to its story, because it can’t do anything else without a great deal of pain.

The Chart of the Day shows gold against its main competitor, inflation-indexed US Treasury securities (during the past year and half it has tracked the 5-year maturity most closely).