Descending the Great Wall of Worry

This is an update to the first chart in my post last week ("A dozen interesting charts") with prices as of noon California time:

Gold is now breaking down to multi-year lows, as the prices of 5-yr TIPS trend lower as well (the chart uses the inverse of their real yield as a proxy for their price).

One of the other charts in last week's post was "Stocks climb walls of worry." I think the chart above represents one big wall of worry that the world is now descending. Global worries peaked with the PIIGS debt crisis in late 2011. Other contributing factors were concern about the weak dollar, Quantitative Easing, oil prices, and geopolitical concerns, to name a few. All those worries pushed up the prices of gold and TIPS because the world was desperate for safety. Now those worries are dialing down a bit, and investors are unwinding the "safety hedges" they put in place some years ago. It's not that confidence is surging, it's that pessimism and fear are declining.

Gold is still about twice it's long-term average price in inflation-adjusted terms. Real yields on 5-yr TIPS are still 125 bps below their long-term average yield of 1.4%, and almost 400 bps below their all-time high (which occurred in early 2000 when stocks were booming and the world thought the U.S. economy would grow 4-5% per year for as far as the eye could see). Gold and TIPS are still quite expensive from a long-term historical perspective. People are still willing to pay a premium for their safety, but that premium is declining.