A Bearish Bond Market, Inflation, and Gold
The “bond king”, Bill Gross, was on record this week saying that the bond market is falling. For the past 25 years the bond market has been on a roaring bull run, so there are significant implications to this turn. A bearish bond market, inflation, and gold – what’s the relationship and how will it affect the markets?
The bond market picks up on seismic change before stocks. Right now, bonds are falling in price resulting in yields spiking above their 20-year downtrend. Meanwhile the dollar is also weakening (posting a loss for 2017). These are both indicators of inflation on the horizon. Inflation always means higher metals prices as the purchasing power of the dollar decreases.
What this means for investors: The debt market and currency market have much higher market caps than the stock market. Thus they are more accurate indicators of significant shifts in the economy. Contrast the raging stock market right now against these and you get a much darker picture for what’s ahead than what the market bulls are saying. A bearish bond market, weakening dollar, and rising inflation are all indicators of an environment where demand is going to spike for safe haven assets like gold. As demand spikes and the dollar devalues, metals have nowhere to go but up.
China Thinking of Halting Treasury Purchases? Meanwhile the U.S. Set to Rack Up More Debt
There was further pressure on the bond market this week after a report was released that indicates China could halt or slow their buying of U.S. treasuries. U.S. debt is supposedly becoming less attractive to the Chinese. The dollar and bond market fell on the news and gold rose. The next day, however, China refuted the report.
What this means for investors: Despite the assurances from Beijing, there are reasons for the markets to be nervous on this front. China could be wielding a political move to pressure U.S. – China relations. President Trump has been vocal about unfair advantage for China in U.S. – Chinese trade relations, and his talk of a more protectionist trade policy from the U.S. isn’t ideal for China. China, however, owns $1.2 trillion in U.S. debt, which is more than any other country, and wants the U.S. to remember who their banker is.
Speaking of debt...the U.S. is on pace, according to Goldman analysts, to more than double treasury issuance in 2019. The U.S. will need to borrow a staggering amount of money to cover ever growing spending and decreasing revenue. Where will this money come from? The debt is already at levels that can never be resolved. How long will this be sustainable?
Gold Outperforms Everything Since Latest Rate Hike
Gold started 2018 with a rally, and seems to have solidified a base to continue strong. It ended the week nearly reaching $1,340 and silver was just short of $17.30. Since the last Federal Reserve rate hike in December 2017, gold has outperformed stocks, the dollar, and bitcoin. On Wednesday it hit a four month high. It’s counter intuitive for gold to rise with rates, but it was the norm all through last year. With more rate hikes projected for this year, these could bump gold further.
What this means for investors: Gold moved up against headwinds last year. The rallying stock market, tax reform bill, falling unemployment, and rising rates all should have depressed gold, but instead it rose 12.1%. Gold is going to be driven by more uncertainty and volatility than last year as geopolitical tensions heat up. The unsustainable “everything bubble” is also approaching its burst.
Read our latest original article to see what the gold investor should know about cryptocurrency
Bitcoin and cryptocurrency are undoubtedly a hot topic right now. How exactly the virtual, unregulated “currency” works though can be complicated to understand. Check out our original article that breaks down bitcoin mining, blockchain technology, and their future implications for gold, money, and society.
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