As the stock market has continued its seemingly never-ending ascent, something else has been happening in the background, albeit more quietly: Yields have been rising.
On Tuesday, famed bond guru Bill Gross of Janus Henderson and formerly of PIMCO suggested that the treasury market has officially entered bear market territory. With a current yield in the neighborhood of 2.55%, the ten year note yield has broken a 25 year trend line. Gross had suggested back in October that a sustained move past 2.40% on the note could be indicative of a longer- sustainable move higher in yields. As it turns out, he could be right.
The Bank of Japan started the selling in treasuries early this week when it reduced its purchases of long-dated paper, in what could be seen as a sign of the BOJ attempting to put an end to the global QE party.
Whether or not Mr. Gross will prove to be correct remains to be seen, but perhaps the bigger question now is how rising yields may affect global markets. The market’s common wisdom seems to be that higher yields can hurt gold and other hard assets, as it may increase the so-called “opportunity cost” of holding such assets.
What may in fact be seen, however, is the direct opposite: Gold and other hard assets could potentially climb as well. Now, you might be thinking “well, that doesn’t make much sense. Why would gold or other hard assets rise in a higher yield environment?”
The answer may be simple: No one knows for sure how global equity markets will react to rising rates, and the notion of the an end to the QE punchbowl could have investors thinking very differently about stocks and other risk assets. In fact, stock investors could potentially become very alarmed by this development, and it could fuel a sell-off that some would argue has been brewing for quite some time now.
Such a stock market sell-off or reversal could potentially act as a catalyst for higher gold and risk assets, even in spite of rising rates. Not only that, but the length and speed with which stocks have risen could be particularly concerning, as any major selling could ignite a massive domino effect as investors look to get out.
Even with the potential for higher rates-even moderately higher rates-gold and other hard assets could still stand to gain as investors get accustomed to a new era of monetary normalization.
Now may be the ideal time to consider adding diversification with gold, and doing so has never been easier than it is today.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer your questions, and can even show you how to buy and hold gold using your IRA account.
Don’t wait for gold prices to take off without you or for the next major stock market collapse before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, bank of japan, bear market, bill gross, gold, opportunity cost, pimco, yield