When it comes to the notion of higher interest rates, most investors automatically, and mistakenly, assume that higher rates equates to lower gold prices. Given the past decade of ultra-low rates and QE, however, such a correlation could actually have the direct, opposite effect of what many assume.
The benchmark 10 year note could possibly hold the keys to substantially higher gold prices in the months and years ahead. That’s right: A higher 10 year yield could actually boost gold rather than drag it down.
Although some opinions may vary on what level yield may have to be seen in the benchmark note, some have suggested that a yield of 2.75%, not too far from current yields of around 2.34%, could have a significant impact on stock markets and investor psychology.
As the risk-free rate of return climbs, investors may begin to closely reexamine current equity valuations and the amount of risk being taken. Stocks have been climbing for a decade now, and higher ten year note yields could have a substantial impact on any further capital inflows for stocks. In fact, rising yields could not only cause investors to slam on the brakes when it comes to long equity positions, but it could also potentially fuel a significant pullback in stocks.
Despite the age of the bull market and what some have argued are extremely overstretched valuations, many have continued to question what the catalyst for the next major sell-off might be. The ten year note could provide such a trigger, and with stocks weakening could also fuel inflows into numerous alternative asset classes, of which gold could be a primary recipient.
The time to act is now, however, before such an asset rotation takes place. Gold is already not far from recent highs and could be poised to challenge or even move well-beyond those highs. The Fed is planning on another rate hike in the coming weeks, and any further hawkish rhetoric could pave the way for yields to rise even further.
Even with a ten year note yield of 2.75, 3 or even 3.25%, however, rates are not likely to rise to previous levels any time soon. The potential for a stock market crash or bear market, and higher but manageable yields could lead to the perfect recipe for much stronger gold.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to incorporate investments in physical gold into your IRA account. The benefits of gold ownership go far beyond the potential for price appreciation, and now is the time to learn exactly how this key asset class may act as a major benefit for your holdings.
Don’t wait for stocks to tank, the next bear market to get underway or for gold to take off without you. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, equity valuation, gold, interest rates, stock market decline, ten year note, treasury yields