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Precious Metals in Holding Pattern Despite Uptick in Bond Rates
Greg Weldon: “At These Yield Levels, Bonds Are Virtually Worthless”
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Gold and silver markets continue to consolidate within trading ranges.
All asset classes are reflecting uncertainty ahead of the election. Investors seem to be as undecided as voters in the swing states. Perhaps the next major moves in metals and stocks – up or down – will have to wait until after November 3rd to be determined.
The gold price currently checks in at $1,904 per ounce and is off a slight 0.1% for the week. Silver shows a weekly gain of 1.6% to bring spot prices to $24.66. Platinum is biggest winner among the precious metals this week and is higher by 5.8% since last Friday’s close to trade at $926. And finally, palladium is putting in a weekly advance of 1.6% to come in at $2,396 per ounce.
Metals markets are being tested by their ability to withstand higher interest rates. Even though the Federal Reserve continues to hold its benchmark rate near zero and will likely keep it there for years to come, long-term bond yields are back on the rise.
Although the 10-year Treasury yield remains below 1%, it rose to a 4-month high on Thursday.
Perhaps the bond market is finally starting to reflect concerns over inflation. But we wouldn’t look to bond yields as a reliable market indicator of anything. Not in an environment where it’s dominated by central bank buying.
We can certainly expect the Fed to step in to suppress long rates in the event they start to inflict too much pain on bondholders or the economy.
But even if central planners succeed in propping up the bond market, that doesn’t mean bonds represent the kind of safety they once did.
The real threat to bondholders isn’t default or even rising rates necessarily. The real threat is a real loss of purchasing power as these dollar-denominated IOUs fail to deliver enough return to keep pace with even the Fed’s own stated inflation objectives.
Market strategist Greg Weldon of Weldon Financial is among those sounding the alarm on bonds. Long time listeners of this podcast will recall Weldon has made some timely and accurate calls during his appearances as a guest expert on our show.
In a recent radio interview, he discussed the risks of holding wealth in bonds as well as the sounder alternative of gold.
Interviewer: Are you essentially stating that bonds are not the wisest choice right now?
Greg Weldon: I'm essentially stating, at these prices at these yield levels, bonds are virtually worthless. I mean, you're going to be protected, in a sense, you'll get your money back in five years or 10 years or 30 years, but we already know the experience over the last 20 years is, the dollar depreciates, and when you get your money back five years from now, those same paper dollars are going to buy you less stuff than it did five years ago, 10 years ago, 30 years ago. So, in terms of protecting the value of your money, bonds really don't do the trick anymore. I think, as opposed to holding bonds, if you do one thing and nothing else that I just spoke about, you would rather hold gold than bonds, any day of the week right now. Gold will protect the value of your wealth way more than bonds will now. It's a much better protector at this point in time. Seasoned precious metals investors know gold can at times be more volatile than bonds. And silver can be even more volatile than gold.
But they also know that low volatility is no measure of safety when it comes to assets that are steadily losing real value. In the long run, gold can be counted on to retain purchasing power while Federal Reserve Notes can be counted on to lose it.
Seasoned precious metals investors keep their focus on their long-term objective. They don’t wait to buy until mainstream media headlines tell them the gold market is hot. Nor do they sell just because some internet naysayer claims precious metals are overbought.
Instead, they accumulate low-premium bullion products over time – ideally when prices are pulling back and the market is quiet – aiming to get the most ounces for their dollars.
But they know that trying to perfectly time the market is impossible. Nobody knows when the next big catalyst will ignite a major metals rally.
It’s prudent to always hold a core position and ideally be able to add to it regularly.
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Well that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.