This time it’s different. We’ve all heard this phrase before, especially in reference to speculative investments like gold bullion. But given the current trends and developments that we’re seeing, this phrase lacks the negative connotation it previously held. And that means you’ll definitely want to consider at least some exposure to precious metals.
First, we’ve mentioned this before multiple times, but the biggest catalyst for gold bullion is the yield-curve inversion. Now under the textbook definition, this occurs when a longer-maturing bond yield slips below a shorter-maturing one. This circumstance makes zero economic sense for the reason that riskier assets offer less reward than a comparatively stable one.
But it’s not really the inversion of the yield curve that will spike prices for gold bullion. Instead, it’s the response from the Federal Reserve. To fix this economic anomaly, the Fed must flatten the yield curve; namely, they must cut shorter-term interest rates to drive this yield down below the longer-maturing note.
Theoretically, this should resolve the inversion problem. However, this action reduces the yield for both the shorter- and longer-maturing bonds. Differently stated, this action is comprehensively inflationary. It doesn’t take a genius to understand what inflation – or even inflationary fears – would do to gold prices.
Gold Bullion Still in the Early Stages
Of course, a major concern about jumping into precious metals is the bag-holding concept. In the last gold rally, the yellow metal briefly eclipsed $1,900 on an intra-day basis before crumbling. This action took down other metals like silver and platinum, as well as the mining complex.
Could another sudden collapse hit this bull run? As you know, anything is possible. And with running fears about gold price manipulation, understandably, people just don’t want to get burned again.
I’m not going to dismiss these concerns because they’re valid. However, I think the opportunity for outright manipulation is limited in this environment. First, let’s face reality: investors are on the brink of panic mode. The full-on panic hasn’t started yet. But once the Dow Jones starts to shed hundreds of points at a time, it will.
In this context, gold bullion will soar as it’s historically the most reliable safe-haven asset. In my opinion, no amount of manipulation can divert this development.
Second, the Fed will continue to do everything it can to flatten the yield curve. Doing so is an inflationary process that will invite the smart money to dive into gold bullion. Likely, the rest of the retail investment dollars will follow suit.
If you ask me, the net manipulation that does occur will be to the upside.