Last Friday saw investors around the world react with worry as short term yields crossed over long term yields, a phenomenon that has accurately heralded every coming recession since the 1960s. A closely watched occurrence by investors and economists alike, these inverted yields were used by many bearish, contrarian, and outright “doomsday” Wall Street pundits as validation that this long-running bull streak is coming to an end.
This info, especially when taken in context with other details such as China’s struggling economic growth figures, could very much spell a major turn around in the next 12-24 months. In response, Gold prices jumped to the highest levels seen in over a month.
Gold prices settled at $1,322.60 an ounce, the highest point it has been at since February 26. As a trusted safe haven for investors, recession fears always spur gold, alongside other precious metals like silver, platinum (and likely palladium as well to a lesser extent) prices forward. Peter Spina, president and CEO and GoldSeek.com went on to say that prices benefited today “from investors going into safe haven assets,” and that “Global economic data, inversions of yield curves and now over $10 trillion in debt globally yielding negative rates are some of the strong influencers, including the continued market selloff which is reviving fears among investors who are seeking safety risk.”
He went on to add that “gold can easily add another $10-20 in the coming sessions before we start to move into technically challenging resistance,” and that it “remains to be seen if and gold can build the momentum to power past this and make its breakout to $1,375 and beyond. If this rally fails, then we will see further consolidation and base building in gold around $1,300 in the next months.”
On Friday, 10-year U.S. government bond yields fell to 2.453 percent, trading before the 3-month T-bill and inverting the yield curve for the first time since before the 2008 financial crisis. Today saw the 10-year note yield drop down even further to 2.407 percent. Some investors have gone on to say that major indexes such as the Dow Jones could drop as much as 40 percent over the coming years, with this inversion acting as the “canary-in-the-coal-mine” so to speak for the global economy.
At the same time, other investment professionals and fund managers are encouraging their investors to balance their fears. Tony Dwyer, chief market strategist at Canaccord Genuity, would go on to say that “an inversion of the yield curve does predict a recession, but historically it is a better buy signal than pointing to a time to get sustainably defensive,” in a note to clients according to MarketWatch. “Even if the YC (yield curve) inverts tomorrow, over the past seven economic cycles, the median SPX gain from the initial inversion to the cycle peak is 21%, with a recession a median 19 months after the initial inversion.”
At the same time, other metals fell today, with silver, palladium, platinum, and copper all dipping in value as gold increased in price. Other factors that have pushed golds price higher include the Fed’s downgrading of its growth forecast alongside weak economic figures from China.