Sunday, September 23, 2012

The Future Killing Fields of Private Wealth: The Global Bond Markets
One of the most significant differences between the 1969-1980 gold bull market and today’s is gold’s relationship to US Treasury long-bond yields. During the earlier bull market, dollar-denominated bond yields rose to unprecedented double-digit levels. Decades ago, yields were rising because people were selling bonds in an era of rising consumer prices. Until 1980 or so, yields failed to compensate bondholders for rising consumer prices. These bond valuations were decimated during the 1969-1980 gold bull market, as yields soared into the high double digits. Exiting the bond market during the 1970s and moving what was left of one’s money into gold and silver was an act of survival.
So far in the current gold bull market, the exact opposite has happened. Since 2001, gold may have increased from $252 to $1,888, but US Treasury long-bond yields have declined from 6% to 2.15%. In a world gone mad with monetary inflation, this relationship seems bizarre, until one realizes that the Fed (and soon the ECB) has been pounding bond yields into submission via its relentless open market operations.
The current situation in the bond market is irreversible. Debt will continue to expand until interest and principal payments consume the total economic output of the Western world, or until sovereign debtors default on their obligations to their creditors. Gold and silver have done well over the past 11 years, but just wait until US Treasury long bond yields once again approach, and then exceed, their 1981 highs.
“The T-bond market (now paying a ridiculously low yield) will become the killing field of private sector wealth,” writes Lundeen. “To deny this possibility is to live in a fool’s paradise. We are currently living in a window of opportunity, a time when gold and especially silver is an affordable investment for most people. But the time is coming when this will no longer be so.
source: BMG

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