City Politics Blog

Better late than never, we’ve got an excellent contribution from Nicolas Martinez for this week’s Student Spotlight!

Succeeding the brisk rise in bond yields exhibited over the past days and weeks, the Fed doesn’t have absolute control over the bond market, with a spike in interest rates ferociously hitting gold and silver. The yield on the 10 year, was just under 1.3%, closing at 1.299% a couple of days ago. We must remember that it was just a month ago that the yield got up to 1%, since the start of the pandemic, we now have this prompt 30% increase, something that in the world of bonds means a vast move. With this increasing fluctuation, where do precious metals stand by?

As interest rates continue to rise, both Gold and Silver got hit extraordinarily high, this been closely related to what happened with SLV, the Silver ETF, where they admit having inconvenience sourcing the physical silver, and the vexation that they may not be able to buy any, having a share in the big silver squeeze wrought on Reddit, where individuals were supposed to buy SLV`S and force them to purchase physical silver that didn’t even exist. Well apparently, that’s exactly what´s been happening, and so, initially silver was off to the races, but then abruptly pulled back, based on this big increase in interest rates, which heavily caught the precious metal market off guard; this is what happens every time, a response on investors selling gold and silver.

As of March, the 2nd, the price of gold plunged to a stunted $1,707 a troy ounce, down 18% from a soaring $2,072 in late August, re-shaping the so-called “heaven asset” as investors cut their holdings on the metals.

“As of March, the 2nd, the price of gold plunged to a stunted $1,707 a troy ounce, down 18% from a soaring $2,072 in late August”

This is somewhat like a knee-jerk, where there’s a sizeable drop in the bond market, a spike in interest rates, what’s the follow-up? Exactly, you sell gold, since there is this idea hovering around wall street, that the current “strong economy” is adjourning the Fed to raise rates prematurely, as a sequel of the economy being so “strong” after all the stimulus, which at the end materializes itself on inflation driving the bond market.

“This is somewhat like a knee-jerk, where there’s a sizeable drop in the bond market, a spike in interest rates, what’s the follow-up? Exactly, you sell gold”

Notwithstanding Jerome Powell and the fed`s best efforts to serene and cool markets down, these fuelling high yields are just, as previously mentioned, reactions to the massive fiscal and monetary stimulus potentially on the way; the well-built growth rebound estimated at 6.5% this year; the inflation fears deepened by the fed, aiming for a 2% and upwards inflation, that basically apprises bond traders that the Fed no longer have their backs, which unmistakable will lead to eventual tapering and rate hikes.

So far, the fed has seen this as a symptom of enhancement on economic output, therefore not worrying about it, but as these quick bond yield raised over the past several days and weeks, it is clear that the Fed doesn’t have full dominance of this market when bonds continue to sky rock.

When researching the market, we individuals tend to look at GDP, the Fed in lieu, is looking strictly at the assured fall in jobs, with an anticipated unemployment rate of almost 10% following the approximate 10 million plunge in jobs, until then, the Fed will not pursue any reversal policy