Gold prices closed at a new high of $3,534 in New York yesterday. And bond yields have been climbing higher as the editorial board of The Wall Street Journal explains below:
A more likely trigger for Tuesday’s bond selloff is renewed concern over inflation. Prices rose an unexpectedly rapid 2.1% year-over-year in the eurozone in August, data released Tuesday showed. Yet the European Central Bank, like the Federal Reserve and Bank of England, seems unlikely to act aggressively if it turns out the postpandemic inflation isn’t entirely beaten. Investors may start assuming that somewhat higher inflation will be with us in most places for the foreseeable future.
So the world’s bond markets on Tuesday did what they always do: digest new information and price a variety of risks. This is becoming more noticeable as the era of quantitative easing recedes and central banks are no longer significant and reliable buyers of government debt. Rejoice, we have true bond markets again.
It is probably good to have central banks removed from bond markets. Investors can celebrate the end of a long, unprecedented intervention. But worries about future inflation must now take center stage for investors. Despite the market pricing in a 92% chance of a rate cut at this month’s Fed meeting, long-term rates have been rising since early August, though by no means are they elevated to unusual levels.
Action Line: When you want to talk about gold and bonds in your portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
