Bond Yields Roil Markets, Gold/Silver Drop

As financial markets sold off this week, precious metals got dragged down in the selling. The culprit, once again, was rising bond yields. On Thursday, the 10-year Treasury climbed above 1.5%. While still low on a historical range, the upside momentum has investors concerned. Over the past seven months, the 10-year yield has tripled from a low of just 52 basis points.

The 10-year note serves as a benchmark for mortgage rates as well as risk premiums in the equity markets. Elevated price-to-earnings ratios in the S&P 500 are more difficult to justify in a higher interest rate environment.

As we’ve noted, real interest rates are also a headwind to precious metals markets. The keyword there is “real” – as in, after adjusting for inflation. And if inflationary pressures continue to grow, that could be all that is needed to drive real interest rates down deeply into negative territory.

The Federal Reserve may also be on the verge of restarting Operation Twist. Under that program, the central bank sells some of its short-dated Treasuries and buys longer-term bonds. The aim is to drive down long-term yields.

But when Fed chairman Jerome Powell spoke on Thursday, he gave no definitive commitment to launching Operation Twist or any other intervention to tame the bond market.

At some point, Wall Street may force Powell’s hand. Despite trillions of dollars in COVID stimulus and more to come, the economic recovery is shaky with inflation risk rising.

Trends forecaster and a many time guest here on our podcast Gerald Celente released a video yesterday warning of what he calls “dragflation”:

Gerald Celente: And Powell failed to reassure investors that central banksters would keep surging bond yields and inflation expectations in check. What did we say about inflation? Only about six months ago in the Trends Journal, coined the term dragflation. Economy dragging down and inflation going up.

Despite inflation showing up in oil prices and elsewhere in the economy, gold and silver trading markets aren’t really reflecting that reality at this time and have had a really tough week.

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Disclaimer: Money Metals Exchange and its staff do not act as personal investment advisors. Nor do we advise about or advocate the purchase or sale of any regulated security, listed on any ...

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