Bond Yields Roil Markets, Gold/Silver Drop / Commodities / Gold and Silver 2021
As financial markets sold off this week, preciousmetals got dragged down in the selling. The culprit, once again, was risingbond yields.
On Thursday, the 10-year Treasury climbed above 1.5%. While still low on ahistorical range, the upside momentum has investors concerned. Over the pastseven months, the 10-year yield has tripled from a low of just 52 basis points.
The 10-year note serves as a benchmark for mortgagerates as well as risk premiums in the equity markets. Elevatedprice-to-earnings ratios in the S&P 500 are more difficult to justify in ahigher interest rate environment.
As we’ve noted, real interest rates are also aheadwind to precious metals markets. The key word there is “real” – as in,after adjusting for inflation. And if inflationary pressures continue to grow,that could be all that is needed to drive real interest rates down deeply intonegative territory.
The Federal Reserve may also be on the verge ofrestarting Operation Twist. Under that program, the central bank sells some ofits short-dated Treasuries and buys longer-term bonds. The aim is to drive downlong-term yields.
But when Fed chairman Jerome Powell spoke onThursday, he gave no definitive commitment to launching Operation Twist or anyother intervention to tame the bond market.
At some point, Wall Street may force Powell’s hand.Despite trillions of dollars in COVID stimulus and more to come, the economicrecovery is shaky with inflation risk rising.
Trends forecaster and a many time guest here on ourpodcast Gerald Celente released a video yesterday warning of what he calls “dragflation”:
Gerald Celente: AndPowell failed to reassure investors that central banksters would keep surgingbond yields and inflation expectations in check. What did we say aboutinflation? Only about six months ago in the Trends Journal, coined the termdragflation. Economy dragging down and inflation going up.
Despite inflation showing up in oil prices andelsewhere in the economy, gold and silver trading markets aren’t really reflecting that reality at this time and have had areally tough week.
On the plus side for gold and silver bulls, theselloff in precious metals mining stocks didn’t gain any new downside momentumthis week. In fact, the GDX gold miners index showed a slight gain throughThursday’s close.
If gold and silver equities continue to displayrelative strength versus the broad market averages, that would bode well forprecious metals themselves.
It’s been several months since a fear trade grippedWall Street. But with stocks showing vulnerability and bonds failing to serveas a good counterweight, precious metals may begin to look more attractive tomore investors as an alternative asset class for portfolio diversification.
Bullion dealers including Money Metals Exchange have seenbuying activity surge in recent weeks, especially for silver products. However,sentiment among those who trade futures and exchange-traded products is anentirely different story.
The paper gold markets have yet to pick up.According to the World Gold Council, holdings ETFs that track gold declinedlast month by 2%. Global gold assets under management now sit at their lowestlevel since last June.
Last month’s sudden spike in silver buying didcarry over into ETFs and other derivatives for a while. But after the silversqueeze failed to sustain any big upside in price, many of the fast-money momentumchasers from “Wall Street Bets” sold out of their positions.
The online chatter and unusual volumes in silvertrading caused the Commodity Futures Trading Commission to hurriedly issue astatement announcing it was closely monitoring the market for “fraud andmanipulation.”
Regulators jumped into action after a decentralizedcampaign by individual investors to buy silver pushed prices up for a coupletrading days.
For years, though, the CFTC has failed to root outthe fraud and manipulation being perpetrated in the silver market by largeinstitutional short sellers. In 2013, it ended a 5-year investigation intoallegations that JPMorgan and other banks manipulate the COMEX silver futuresmarket. The CFTC claimed it found no evidence of wrongdoing.
The head of the CFTC at that time was Gary Gensler.He is currently President Joe Biden’s pick to run the Securities and ExchangeCommission. That means for the big investment banks on Wall Street, it will bebusiness as usual.
It doesn’t necessarily mean they will keep silverprices depressed, however. Rising industrial demand coupled with powerfullystrong retail bullion buying will test the ability of supply to keep pace.
The bullish case for silver doesn’t rest onengineering a dramatic “short squeeze” event on the futures market. Instead, itis based on the fact that silver is scarce in the face of rising physicaldemand. It is based on the certainty that inflation will diminish the value ofthe U.S. dollar and the history that shows precious metals function as soundmoney.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2021 Mike Gleason - All Rights Reserved
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