We have recently seen long term bond yields climb quickly through key technical levels. On the 8th of June the U.S. 30 year bond yield climbed through 5.30% and the 10 year bond yield reached 5.24%. The 10 year yield was below 4.90% just a couple of weeks ago and today we have seen bond prices drop lower and the all-important 10 year yield shot through the 5.25% and touched 5.28%! The break of the 5% level was psychologically important and on a technical basis we have seen the 10 year yield break through the upper part of a long term downward trend channel and consequently confirming that the low yield of around 3.10% we saw in 2003 marked the top (in terms of prices) of the bond bull market that started in 1981.

The gold bull market of the 1970's topped in 1980 and bottomed a couple of years prior to the 10 year yield in 2001. Check out the first chart below to see how gold broke a similar trend channel the 10 year yield broke last week back in 2003.

We have also noticed that the recent rise in bond yields has coincided with a sharp drop in the gold price from around $670 early last week to just under $650 at present. The mainstream press has reported that the gold price has gone down because higher yields make gold less attractive! We think this analysis does not follow as the gold price has actually been rallying strongly since the 10 year yield bottomed in 2003! We have also taken a look back to the gold bull maket of the 1970's and noticed that bond yields were also rising during that same period. Note in the second chart below how the 10 year yield doubled from around 7% to around 15%.

What we have concluded from the third chart is that in the fiat momey era since 1971 the gold price and bond yields have moved roughly in unision. Even for the last four years, despite the fact that gold seems to have moved up at a much quicker pace than bond yields, they have moved up together. If anything we feel the 10 year yield might have a bit of catching up to do!

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

Mario Innecco Archive

Comments

Rickshaw Tan
13 Jun 07, 10:29

Fiat gold or brass ?

If u had a dollar in 1980 and took shelter against fiat currency in gold, where will u be today ? When gold goes up, wow, all that analyses is golden but when it goes down blame it on the Feds. None of the gold advocates is concerned 'bout the ungolden impact of gold on the last bit of environment left. What's the point, golden brass is worse than fiat money, at the least u can burn all that to keep warm, when the shit hits the fan.

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