If you haven’t heard yet, gold and silver are on fire… and yesterday, gold hit a 6-year high as it finally broke back above the key level of $1,500. Not only that, silver hit a 13-month high.
Of course, the precious metals have been moving as the markets have been on edge about the U.S. and China trade war and growth concerns.
However, what you might not know is that precious metals like gold and silver are also affected by government bond yields… so not only are gold and silver getting a boost in demand from safe-haven demand (traders looking to protect their portfolios)…
… it’s also been moving higher because bond yields have been collapsing.
For example, the U.S. 10-Year Treasury Yield dropped to 1.61%… and the U.S. 30-Year Treasury Yield is nearing historic lows. Additionally, European bond yields have been sliding too.
So how and why is this move in yields affecting gold prices?
Well, it’s pretty simple.
When interest rates are low, bonds don’t become as attractive as other asset classes like stocks and precious metals. You see, investors and traders are always looking for high-yielding assets… assets that will make money.
So if you think about it… the chances of gold and silver moving more percentage points than the yields currently being offered by Treasury bonds are pretty high.
Let’s take a look at the charts to see how yields are inversely correlated to gold and silver. In other words, when yields go down… precious metals go up… and when yields go up… precious metals go down.
Here’s a look at the daily chart in the SPDR Gold Shares (GLD) – the gold tracking exchange-traded fund (ETF).
As you can see, gold has been trending higher and is already up more than 15% since late May.
The iShares Silver Trust (SLV) – the silver tracking ETF – is up nearly 20% over the same period.
Compare those two charts to the U.S. 10-Year Treasury Yield.
As you can see, there is an inverse correlation between yields and precious metals… and this isn’t the first time we’ve been seeing this price action.
For example, if we look back to the global financial crisis… you probably remember what went on… if you don’t, gold and silver trended higher for months, as investors and traders looked to high yielding asset classes that would protect their portfolios.
Check out this daily chart in GLD from 2007 to mid-2008.
Gold had one of its most historic runs… and moved nearly 40% in just a few months.
Heck, silver actually nearly doubled from its low back in 2007.
Compare that to the U.S. 10-Year Treasury Yield during that period…
Looks pretty similar to what’s going on now, right?
Falling yields… rising gold and silver prices.
We have yields getting crushed… and the market pulling back, but still not too far away from its all-time high’s… and gold and silver prices moving higher and breaking above key levels.
Not only that, we’re seeing central banks cutting rates… which is often an indication that there is a fear of an economic slowdown. That said, this has also been playing into the rise in gold prices…
… and it’s not surprising that traders and investors have been bidding up gold and silver because who wouldn’t want to buy something that’s “safe” and has higher yields than bonds.
However, with this recent move in precious metals… I’m going to remain patient and wait for one of my signals to let me know exactly when I should be buying gold and silver, or precious metal stocks.
Want to learn more about my signals? Then check this clip out. Not only does it explain what my strategies are all about, but also how to profit off them. It’s a must-watch, and you can check it out here.