The sharp rise in bond yields has been the topic of much discussion over the last week, and yields have a lot of room to run even higher. The movement in the bond market has not gone unnoticed by equity investors, and stocks saw some significant selling last week as a result.
To be clear, it is not necessarily the rise in yields that has investors upset. Rather than focusing on a specific level in rates, investors are likely far more concerned with the speed of the rise. A rapid ascent in rates disturbs the overall sense of equilibrium in the markets, and can cause investors to go risk-off in a hurry.
Anywhere you turn these days, you will likely see so-called “experts” and financial pundits discussing the notion of rising rates being a negative for gold. Although this idea may make some sense at first glance, a deeper examination will show that higher rates may not only not act as an obstacle to higher gold prices but may even act as a tailwind.
To understand why higher rates may actually be a gold positive and not a gold negative, one must consider why rates are rising in the first place. According to the Fed’s mandate, one if its primary jobs is to control price pressures within an economy. That being said, it the central bank is looking to raise rates there is usually good reason-and that reason is almost certainly rising inflation.
As a hard asset with finite supply, it stands to reason that gold may potentially hold in value or even increase in value as paper currencies decline in value. Knowing that gold may act as an important hedge against inflation, wouldn’t it make sense to buy and hold golf as inflationary pressures are on the rise?
Of course, then there are also the so-called “experts” who will say to avoid gold due to the opportunity cost of holding it. So now ask yourself this: If inflation is on the rise and the Fed is forced to hike rates because of it, what is likely to happen to stocks? Do stocks like higher rates? Are higher rates supportive of economic expansion?
The answer to those questions is NO. Markets do not like higher rates. Higher yields drive up borrowing costs for businesses and consumers and can have a significant impact on earnings. It stands to reason further, therefore, that there may not be much, if any, opportunity cost in such an environment.
The bottom line is this: Investors have just as much reason, perhaps even more, to acquire gold in a rising rate environment as they do in a low rate environment.
The wheels of the next recession and stock market bust have already been set into motion. The recent, rapid rise in rates is simply a symptom.
That is why now is the time to take action. With accelerating inflation, higher rates and a stock market that could implode any day now, now is the time to add needed diversification with physical gold.
Adding this key asset class to your portfolio has never been easier. Simply pick up the phone and 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 build a significant allocation in this key asset class using your IRA account.
Don’t wait for the next major recession and stock market collapse before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, bond yields, gold, hard asset, interest rates, paper currencies