To quote Bill Murray from the classic movie Ghostbusters, it’s “dogs and cats living together.”
The second part of his famous quote—”mass hysteria”—I’m reserving judgement on.
For now, we’re stick with dogs and cats in cohabitation…
The “dogs” and “cats” I’m referencing here are the yields on 10-year Treasury bills and the price of gold.
Historically, those two don’t like each other.
Economic textbooks say they are essentially opposing forces. Yin and yang. Light and dark. Good and evil.
The last time the Federal Reserve embarked on a rate-hiking adventure—the mid-2010s—yields on the 10-year Treasury jumped to as high as 3.2% from about 1.3%. That’s a big move in bond yields in what was less than a two-and-a-half-year period.
Gold prices over the same span sunk to about $1,170 per ounce from near $1,370.
Dogs and cart moving in opposing orbits…
This time, however, the beasts are walking side by side. And that says something—not too good.
Since March 2020, when the 10-year Treasury hit a low of 0.333%, yields on America’s benchmark bonds ran up to 5.02% as of last fall (they’ve retreated a bit since then to about 4.2%). That is a gargantuan moonshot—a 15x run. In bonds! That’s like a cryptocurrency return.
As such, gold is down…
Just like the textbooks say.
Only, that’s a lie.
The textbooks have been decidedly wrong and out of date.
Gold is actually up, too.
Over the same period, the yellow metal has sprinted to a new all-time record over $2,200 from just under $1,500. It’s not a 15x return, but it’s still highly unusual that gold would be motoring higher on such a tremendous expansion in bond yields.
And yet, gold ran right alongside bond yields.
Dogs and cats living together.
See, we live in a different world than what textbooks were written for. They were written for financial normalcy. However, we now live in Bizarro World. Or, if you’re a fan of Stranger Things, the Upside Down. Probably the Upside Down is the better analogy—it’s scarier there.
Gold is running higher alongside bonds because our financial world these days is the Upside Down.
And it’s not just the US.
Most of the Western world is playing hopscotch on dental floss strung across an abyss.
We’ve had half a century of neoliberal fiscal and monetary policies predicated on the belief that government can spend all the money it wants and never face a comeuppance because, well, it’s government. It has the power to tax, and the power to print, and those powers combined mean that government can defy the laws of debt.
Law #1: Thou shalt not overextend thyself, or I shalt bend thy over.
Law #2: Reread Law #1. It’s the only law that matters.
While it’s true that governments are not families and, thus, do not operate on the same set of financial rules, debt is debt. Period.
You repay debt.
Or you default on debt.
Or debt bends you over for forced, anal rogering—sand as lube.
Those really are the only options.
You can keep growing your debt as a government and pretend that you’re Superman and immune to any disaster.
But debt is kryptonite. And even Superman is toast.
Not a single country in the history of countries has survived extreme debts. History books are fat with the failures of governmental arrogance—ancient China, ancient Rome, ancient Greece, the British Empire, the Spanish Empire, the Portuguese, the Dutch, the Venetians… we can go on across a long span of history.
But you get the point.
Debt is debilitating, even if you own the sole means of currency production and the sole capacity to tax.
You cannot tax your way out of a debt crisis because that just leads to reduced economic capacity that then undermines your ability to levy said taxes.
And you can can’t keep printing more and more money, because the debt repayment costs spiral ever higher, with the only out being to default on the debt (very bad for the business of selling more debt), or the aforementioned tax hikes… which can’t work because of those slowing effects on the economy.
So here we are: Dogs and cats living together…
Why has gold continued to rise alongside Treasury-bill yields, rather than gone down as it would in normal times?
Because investors know the US Treasury faces a comeuppance at some point. And so money is still pouring into history’s greatest safe haven—gold.
My advice: Buy gold. As much as you’re comfy holding. You won’t be disappointed.
And for those who truly understand what’s coming, own gold offshore, someplace like BullionStar in Singapore. Personally, I buy and hold my metals there in one of the safest, most strongly regulated financial markets on the planet. (Note, the link is an affiliate link, and I offer it because I’ve been a BullionStar custoemr for years and it’s one of the very few offshore gold and silver sites I fundamentally trust with some of my own wealth.)
If we ever come upon a moment when the US once again decides it must confiscate gold to save the dollar (as it did in 1933), you’re going to be very happy your gold is outside the purview of reach of Uncle Sam’s G-minions. Unlike overseas bank and brokerage accounts, you don’t have to report a bullion account to the goverment. And Uncle Sam’s laws are not going to force Singapore to send your gold to America.
Owning the greaest non-dollar asset in a place like Singapore is one of the best Plan B options you can pursue.
Like I said in the headline, dogs and cats living together in this moment is, to wrap in another animal analogy, a canary in a coalmine.
Be prepared.