Bonds Are Junk — You Can’t Afford to Miss out on Gold’s Historic Rally
- The rally in equities means investors are looking for a safe place to stash their profits.
- Bonds used to be the answer. But not anymore.
- Matt Badiali tells you why gold is set to take the place of bonds. And that means it will hit $2,000 per ounce this year.
I’ll be shocked if we don’t see $2,000 per ounce by the end of the year.
I’m not a gold bug. You won’t find me bringing every conversation back to the benefits of gold bullion.
But I’m bullish on gold today.
That’s because I think it will hit its all-time-high price this year.
I look around the market and see billions of dollars sitting in risky investments.
Some of that money is already moving out of equities and into more “safe” investments.
The search for safety is ramping up. Fund managers, pension plans and central banks are looking for safety.
The problem is that there aren’t many safe places left.
Bonds’ Lost Yield
Historically, if you wanted to get out of stocks, you could buy government bonds. They didn’t pay a lot, but your money was safe. And you could beat inflation.
But those days are gone.
Today, you have to pay to own Swedish, Swiss, Danish or Japanese bonds. The interest rate is negative.
And the trend is spreading. President Donald Trump recently called for the Federal Reserve to lower its interest rate to zero — or less!
That’s created a vacuum for safe havens. The search gets harder as the current bull market continues into record territory. Funds need to pull profits out and park them somewhere “safe.”
The search for safety landed on some absurd solutions…
A stark indicator of just how desperate folks are comes from Greece.
Just look at this chart:
It shows the steady decline in yield for 10-year Greek debt. As investors buy these bonds, the yield gets lower and lower. So, the decline in yield means an increase in popularity.
Greece’s government bonds are so bad they have a “Junk” rating.
The country’s debt to gross domestic product (GDP) is 181%. That’s extremely high.
When debt to GDP crosses 100%, it means the country can’t cover its debt with all the money it makes in a year.
To put Greece’s debt in perspective, the highest debt to GDP in U.S. history was 122% — following World War II.
In Greece’s case, it would take nearly two years of GDP to cover its debts. That makes it a high default risk. To put in plainly, Greece has a terrible credit score.
At almost any other point in time, we’d expect the yield on Greek debt to be in the double digits.
Yet, Greek 10-year government bonds now yield 0.97%. That means you earn $97 on every $1,000 you invest.
That’s crazy. The paltry reward doesn’t justify the risk.
Gold Is Outperforming Other Safe Haven Assets
It is why the gold price soared 35% from its low in August 2018. It offers a much better alternative to junk debt. And negative interest rates.
That’s enough to snuff out the only argument against gold: It doesn’t pay a dividend. But in a world of low-to-negative interest rates, gold’s long-term store of value is a strong attraction.
And while inflation isn’t on most investors’ radar, it is on most long-term planners’ minds. It steals 2.3% of your cash value per year, currently.
That doesn’t seem like a lot. But it adds up.
What cost us a dollar in 2010, now costs us $1.20 in today’s money.
Our money must earn some interest to keep up with inflation.
In other words, if you park your money in Greek debt at 1%, you’re still losing 1.3% after inflation.
Inflation and a lack of alternatives means investors are going to have to buy gold. That’s why I see gold hitting $2,000 an ounce this year.
Editor, Real Wealth Strategist
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