The price of gold caught in crosscurrents of a significantly weaker equity market, a stronger dollar and softer 10-year bond prices around the globe. In other words higher anticipated interest rates are having an impact on all the markets.
Equity markets around the globe all following our sell off on Friday and now the Dow Industrial average is called to open down more than 250 points this morning. As we indicated in our last comment equity stop loss orders are being placed and a very high number. The financial advisors I spoke with this morning indicate that they don’t see any buying emerging as most investors believe there is more down side risk to come. Higher interest rates are headline news story on all the business channels.
Fox business is reporting one prominent fund manager said this morning we can see 7 percent GDP in the first quarter. Well if that happens, that news will be released after the Fed meeting in March and I expect at the Fed meeting in May the board might just have to respond to the number and not wait until the June Fed meeting.
Why are higher U.S. Treasury Yields a problem for our country?
Our Ten-Year Treasury Yields are at a four-year high at 2.84 percent and overnight reached a high as 2.885 percent.
Treasury yield is the return on investment, expressed as a percentage, on the U.S. government’s debt obligations. Looked at another way, the Treasury Yield is the interest rate that the U.S. government pays to borrow money for different lengths of time. This will add to our country’s debt, something we just can’t afford.
As U.S. Treasury rates rise, so do interest rates passed on to the consumer. Business loans get more expensive, mortgage rates raise and so do interest rates on credit cards.
What really spooked the equity markets on Friday was the Atlanta Fed calling for the first quarter GDP annualized at 5.4 percent. If this happens, many economists claim the economy is heating up too fast and would require the FED to try to stop it in its tracks by raising rates four times instead of the three raises that the Fed board predicted for 2018. Not jumping ahead of ourselves, just one group’s prediction, and that doesn’t mean it’s going to happen, but it was enough on Friday and continuing today to send the nervous investors heading for the exits in a big way.
For the time being, the only silver lining I can find is that with higher interest rates our seniors will finally get a better rate on their CD holdings. It’s been a long time since I’ve seen a senior in the bank with a smile.
Have a wonderful Monday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.