Spiking Gold, Silver, And Bond Yields Signal Approaching Crisis

Gold and silver running higher in price have historically warned of currency debasement and price inflation thereby forcing interest higher. Witness the 1970s where interest rates ran to 20% before gold and silver prices cooled off.

By forcing interest rates higher and ending central bank loose money parties for financial markets, gold and silver were not well received by financial market players.

The London ‘solution’ of rapidly escalating gold and silver prices limiting loose central bank monetary policy was the initiation of trading promissory notes for metal in 1988. Notes for metal that could be created without limit in the London cash/spot gold and silver markets - the world’s largest and most important metal cash market.

This yielded decades where interest rates were run lower on a secular basis with continually looser monetary policy sending financial market speculation into low earth orbit.

Until now.

Metal Demand Ends Paper Games

Gold and silver prices were relatively well behaved until 2020 when, underpinned by growing physical demand, the price of both metals began to first step, and then run, higher.

As physical demand for these metals increased, it became increasingly difficult to manage their prices with selling of additional promissory notes in the London cash/spot markets.

In a world of metal shortage, pesky buyers were increasingly asking for delivery of metal bars forcing a retreat of London bullion bank paper note sellers who had previously flooded the market with promises for immediate bar ownership and delivery on demand to unwary buyers.

Infinite gold and silver availability in London started to become limited.

Figure 1 - Gold And Silver Relative Prices 1985 - Today; source: Tradingview.com

Interest Rates End Their Decades-Long Downtrend

Interest rates also bottomed in 2020 and began marching higher, as expected, along with gold and silver prices signaling bonds were being sold and gold and silver were being bought.

This signal was sent that the loose monetary financial market party was coming to an end.

Now, over the past few weeks, we’ve seen interest rates start to spike higher indicating that bonds are being more rapidly sold and that an era of not just higher interest rates is coming but perhaps punitively higher rates are approaching.

Figure 2 - 30 Year Government Bond Yields (US Treasuries - blue, UK Gilts - red, Japanese Government Bonds - white) 1988 - Today; source: Tradingview.com

Markets Force The End Of Loose Money Policy

Decades of wildly loose monetary policy by global central banks have flooded the global marketplace with fiat currency (see US M2 currency chart below) that has in turn driven speculation in the world’s stock and bond markets to value these financial assets at more than $270 trillion.

Figure 3 - US M2 Currency Stock (Total System Currency) 1958 - Today; source: Federal Reserve Corporation

Today’s spiking interest rates as bonds are sold along with running gold and silver prices as these metals are bought indicate that the era of stimulated financial markets underpinned with highly attenuated gold and silver prices, through price fixing, is over.

We are heading into a prolonged period of selling of both bonds and stocks in the global market that will likely reach a crisis level.

Readers should remain alert as the typical response by governments in these circumstances where their centrally planned schemes come to ruin is to start a war of distraction somewhere.

That might just happen again.

Best regards,

David Jensen