The front end of the U.S. Treasury yield curve is becoming attractive to investors as an alternative to Equities, without credit risk.
Ten year treasury yields hit their highest since January, 2014, now over 3 percent.
The last time Treasury yields were at 3 percent, gold was trading at $1,225.
Economists are looking at a significant amount of front loading growth due to the tax cuts and the street is expecting 3 more rate hikes this year.
Traders are looking at the value of the U.S. dollar increasing believing that the most recent lows at 89.23 in the dollar index are just a distance view in the rear view mirror.
These headlines are expected to put continued pressure on Precious Metal prices.,
Market Gage Book Club
I just finished reading a book on the decline of the U.S. Dollar as the World’s reserve currency.
The name of the book is, How Global Currencies Work: Past, Present and Future, written by Barry Eichengreen, Economics Professor at the University of California, Berkeley.
I’ll try to hold your interest by keeping it simple.
The U.S. Dollar is losing its grip as the world’s currency. What we mean by that is, for over 70 years, the U.S. Dollar has been the world’s dominant currency. Central banks around the world hold a large portion of their reserves in U.S. Currency. U.S. Treasury Bonds are one of the world’s most liquid markets.
Two potential problems that can change our status on the world stage are: a trade war and uncontrollable debt.
A trade war is a possibility, but uncontrollable debt is already here. If a trade war does occur it will only add to our debt problem as the world could turn its back on us and not buy our treasuries. We better be nice to our Chinese friends as China buys a significant amount of U.S. Treasury debt (lending money to the U.S. government) because its export industries earn enormous sums of foreign currency. Last year, China ran a trade surplus of over 400 billion. And despite Beijing’s efforts to denominate more of China’s international trade in yuan, the bulk of those earnings came in the form of U.S. dollars.
After reading this book, I’m still trying to figure out what other currency could take the place of the U S dollar.
One must remember that back in 2016 the IMF decided to include the Chinese yuan in the basket of currencies
that make up the Special Drawing Right, an alternative reserve asset to the dollar.
Back on Saturday, the Bank of Japan’s Governor, Haroda Kuroda said, “I find it curious that most recently the world is finding the Yen a safe haven.”
Maybe the world is giving up on the U.S. Dollar as the reserve currency as our countries debt explodes and
Washington takes on a protectionism posture.
Time will tell where we wind up on the world stage, but with spending out of control and higher interest rates
on the horizon, it might be the time to take a hard look at your portfolio to make sure you are positioned –
the next storm is a-brewin.
Don’t give up on the yellow metal just yet.
Have a wonderful Wednesday
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.