Gold gains as dollar retreats amid rising yields

Apr 26, 2018, 00:44
Gold gains as dollar retreats amid rising yields

Government bonds also fell across the global markets.

Mark my words: if there's a collapse, there could be a significant amount of wealth destruction, and it could have severe impacts across the board.

ENERGY: Benchmark U.S. crude oil gained 58 cents to $69.22 a barrel.

"Two year yields tend to rise along investors' expectations for tighter Fed interest-rate policy, while longer-term yields are more responsive to sentiment about economic prospects". Indeed, in Europe and Japan, there are still swaths of bonds with negative nominal yields. So, for your $1000, you get $30 a year for ten years, and then you get paid the full value of the bond, $1000. If the yield is going up, that means a lot of people are convinced inflation is going to rise faster than it has in past, which means your actual paycheck is not going to go as far.

A gauge of world stocks tumbled on Tuesday, erasing early gains as USA bond yields scaled the 3 percent threshold for the first time in four years, while oil prices reversed course after climbing above the $75 per barrel mark. For comparison purposes, Canada's 10-year government bond was yielding just over 2.3 per cent on Tuesday morning.

Thanks to these two factors, Treasury notes help set the cost of literally everything else involving money: Remember, in investing, the higher the risk of losing your money, the more the investment has to pay out.

Gold firmed after three days of losses on Tuesday as the dollar stabilised off an earlier three-month peak and a rise in U.S. Treasury yields stalled, with lower prices tempting some buyers back to the market. Silver gained 1.2 percent to Dollars 16.72 an ounce after falling more than 3 percent in the previous session. Now we are at a critical level (the red circle).

"Do 3% yields spell the end of the stock market?"

So, the 3.5% level is critical to watch.

Gold prices fell on Wednesday as the dollar advanced towards more than three-month highs and on easing concerns over North Korea and a Sino-US trade war, but found some support from sliding stock markets.

Why Does the Bond Market Matter?

If someone is enrolled in a pension plan, chances are they could be impacted by the bond market.

Taxable bond mutual funds and ETFs have drawn $68 billion in net inflows this year, bringing the total in those funds to $4.9 trillion, according to Lipper. A collapse in the bond market could put the retirements of many Americans on the line.

Looking at the geopolitical landscape, just as strife between the U.S. "Stating the obvious, high debt levels along with higher interest rates is not the best combination". For instance, mortgage rates are highly dependent on how the bond market behaves. Theoretically, the yield on TIPS is supposed to serve as a proxy for the real rate of interest and the real rate of interest is supposed to be related to the expected real rate of growth of the economy. USA equities are around flat overnight, despite generally better than expected earnings results from U.S. corporates (including Twitter overnight). It spells trouble ahead.

Dear reader, ignoring the bond market could be a big mistake.