Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
How to Protect Your Site from Bots & Spam? - 20th Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 20th Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 20th Aug 19
The Gold Rush of 2019 - 20th Aug 19
How to Play Interest Rates in US Real Estate - 20th Aug 19
Stocks Likely to Breakout Instead of Gold - 20th Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 20th Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 20th Aug 19
Holiday Nightmares - Your Caravan is Missing! - 20th Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Bond Yields Soaring is Not Always an Inflationary Event

Interest-Rates / International Bond Market Jun 13, 2009 - 05:11 AM GMT

By: Adam_Brochert

Interest-Rates

Best Financial Markets Analysis ArticleBond yields soaring is not always an inflationary event. The traditional teaching is that rising bond yields indicate economic recovery and/or inflation. This is true until it isn't. The problem is that the best parallel for when it ain't true is what's happening right now. Damn, this investing stuff gets complicated when you look through actual history.


Here it is in all its glory: A monthly long bond price chart from 1921-1933 (remember that a falling bond price means a rising yield):

Ok, so what gives? People flee risk at this point in a secular credit contraction/economic depression and liquidity dries up. Governments get desperate and risky at this point in the cycle, so people rush into cash, Gold and short-term government debt as the longer-term outlook becomes uncertain. As the chart below demonstrates, the fall in long bond prices in the early 1930s actually represented a great buying opportunity (chart from www.thechartstore.com):



So, when the Gold bugs say that rising bond yields indicate the coming hyperinflation and when the CNBC jag-offs say the rising bond yields are due to a recovery and/or concerns regarding inflation, ask them to explain bond yields between 1931-1932. I am not saying that there won't be a coming inflation - of course there will be, eventually. But the path we have started down is deflationary, not hyperinflationary.

Eventually, all fiat currencies depreciate until they are completely worthless and subsequently abandoned. That's as safe a bet as there is! But the death throes of a fiat currency in extremis are not as easy to game as you might think. A deflationary collapse can precede hyperinflation (or just regular aggressive inflation) and holding Gold is thus the easiest no-brainer investment for the typical retail investor in this environment.

Holders of Gold will do just fine in this deflationary environment. Those who understand Gold know that Gold is money. Gold is a currency. Holding "real" cash in a deflationary depression maintains wealth and enhances it relative to one's neighbors who stay invested in stocks, commodities, corporate bonds and real estate. If you hold onto your physical Gold, you will be able to buy your neighbors' stocks, commodities, corporate bonds and real estate at pennies on the dollar in a few short years.

This is where I part company with many deflationists who think the Gold price will collapse during deflation. To assume so is to defile Gold and relegate it to commodity status when it is well known that Gold is money, not a commodity. If cash is king during deflation, then Gold is the grand emperor wizard senior king. Being no one's liability and being non-debaseable are qualities that become critical during times that create desperate central banks and governments. Why else would governments punish holders of Gold with unfair capital gains taxes and sometimes even confiscate citizens' Gold (like in 1933)?

I believe Gold will outperform every form of fiat currency, including the U.S. Dollar. I also believe Gold will trounce other commodities, including oil. Nothing like severe demand destruction to trump peak oil and export-based economies like China. Gold outperforms in a Kondratieff Winter because it requires no confidence, no economic activity and no risk taking. We all also know that the reserve status of the U.S. Dollar is in trouble and that a geopolitical event could dethrone it.

Central bankers own more Gold than anyone. Let me repeat that in case you've missed the profound implications of this basic statement: central bankers own more Gold than anyone. You think the central bankers are going to be the losers in this mess? Hahahahahahahaaaaaaaa!

Get some physical Gold. You won't regret it. When the Dow to Gold ratio gets to 2 (or lower as I personally anticipate), you can think about trading Gold for something else.

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2009 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Adam Brochert Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules