So, would you be better off buying gold or shorting bonds?
jmski52
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A pretty good article discussing bonds as an indicator for gold price.
I agree with the article. My question is, whether gold stocks (gold stock junior index fund) or shorting bonds would be more profitable, and where is the inflection point between them?
I agree with the article. My question is, whether gold stocks (gold stock junior index fund) or shorting bonds would be more profitable, and where is the inflection point between them?
Q: Are You Printing Money? Bernanke: Not Literally
I knew it would happen.
I knew it would happen.
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Comments
<< <i>Gold’s bull market will accelerate when money starts to move out of bonds and into Gold.
>>
Really? It's guaranteed?
Since the bond market is capitalized way beyond the total value of all the gold that exists, I would observe that if even only 1% of the bond market were to flee into gold, it would create havoc in the gold market. I think that the article is merely discussing the impact of a trend from bonds into gold, regardless of the magnitude.
If the premise is correct that a destruction of confidence in bonds is forthcoming, then it is conceivable that a gold fund could do very well, just as shorting the long bond would also do very well if a destruction of confidence in bonds occurs.
I don't presume to know what's going to happen. I was asking for opinions.
I knew it would happen.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Why take a chance. Do Both! >>
Exactly
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Here are charts for AGG (corporates), HYG (high yield), TLT (treasuries):
None of the charts look like bubble charts. The big dog, TLT, treasuries, already had a bubble deflate when TLT spiked and then fell back 25% during the 2008 crisis. In any case, how much is a trader likely to make shorting these issues? The charts show relatively small percentage movements, so unless a person goes to leverage and risk, they aren't going to make much money.
/edited for a typo
Seriously, if you were to actually short bonds, that would have margin risk, that owning gold wouldn't have. and what Red Tiger says has a lot of wisdom in it...although I agree that treasurey bonds are a lousy investment for the long run here( beyond 5 years) in the short run too many think it's an easy trade( it does seem logical) and that usually spells trouble...
I don't think it's a faulty premise, it's as usual, the timing.
There are derivative(
The charts you show don't go back far enough to show the bubble red
<< <i>You can short bonds without margin via ETFs. TBT is one example
The charts you show don't go back far enough to show the bubble red >>
So do you have a position? Or is it just empty talk? For the record, I am long TLT, though the position is tiny. If the five year chart doesn't show very much movement, how much do folks expect to make on the trade? And when? Are we talking 20 years out? I might agree if the time horizon is that far out.
In the long term, shorting bonds might be a decent play. However, when guys get interviewed on financial TV saying something is a sure thing, that sure thing is almost always a sure loser. I don't care what it is. Folks that go on TV saying that a certain market can only go one way, usually get their head handed to them. When the popular media has segments saying something is a "bubble," but the chart doesn't show any evidence of a bubble, usually means the media is wrong. Even if the chart is bubbly, the media hardly ever gets the timing correct.
Without leverage, even if the trade works out, the near term percentage returns are likely going to be single digits (less than 10% per year, likely less than 5% after fees and commissions) unless the end of the bond world does come. Why take on risk and so much complexity for the possibility of 10% a year? Want a bigger return? Sure, use leverage, but that sword cuts both ways, and also adds more expense. For those stacking physical gold, leveraged shorting is perhaps the last thing that I might expect.
There is a time when cash is good. Likewise gold. There is also a time to buy bonds and a time to short them. Let's call this thread a "bond awareness exercise".
My biggest concern in messing with a position that shorts bonds is that the whole damn thing might blow up and there won't be any cashing in because there won't be a counterparty left to collect your paper bet from. Still, I like knowing about instruments like the one dbcoin just mentioned, and I thank him.
For me - I'm still having trouble justifying anything other than physical metals and some cash. The healthcare thing is just more of the same - it's the whole picture that I don't like, at all.
jmho
I knew it would happen.
If one is looking at 30 yr charts, then the 30 yr USBond certainly looks like a mammoth bubble. After prices bottomed in late 1981 it has enjoyed 28 years UP (ie yields down). The initial head and shoulders formation forecasted a yield level drop from 15 to about 5.....that has already occured. If not for the creation of $170 TRILLION in otc US interest rate derivatives over the past 10-15 years, these rates would have risen sharply during the recessionary period of 2000-2003. But that day of reckoning was delayed by Greenspan and Co. Even the bottoming of rates in late 2008 during the Wall Street sell off can be seen as a final blow off event as the rates have started trying to turn upwards. Shorting bonds short term could certainly work as they struggle to stay above the 112 price-resistance line. But the 28 year run would imply that it's time to shift gears. There is only one way for $170 TRILL in otc interest rate swaps held by our 5 biggest banks to end.....and that's badly. The only reason that 30 yr chart did not turn upwards years ago was due to the creation of these illiquid derivatives and pumping the money supply.
I find it interesting that the 30 yr bond chart closely resembles the US dollar chart over the past 1-2 years. An initial head and shoulders was followed by a brief bounce and then a very long meandering 5th leg down. The dollar finally broke out of that funk in December. It's only a matter of time before Bonds break out of their 28 yr funk for good. And I wouldn't want to bet for a 28 year trend staying in place considering all the machinations that were required for that to occur.
Gold is likely fully valued on a historical basis for now but that is not to say it is an excellent trading vehicle given the volatility. Short the bonds.
It's currently about 50% short of even it's inflationary adjusted value using the BLS CPI calculator ($2250). And this assumes the CPI calcluation changes over the years withstand scrutiny. What is the true value of gold as world fiat currencies compete to reach the bottom first? Gold's bull market will accelerate as the confidence loss in fiat accelerates.
Really? It's guaranteed?
Pretty much....as long as the current path towards infinite QE and mismarking the values of otc derivatives continues. In order to sell bonds backed by nothing, rates have to eventually rise...and rise...and rise. Either that or repudiate national debts around the world and start over with a new one-world currency.
With all the QE being pumped around the world behind the scenes I would not want to short anything. Long gold (anti-paper) seems to be a logical bet...as would be key/life-sustaining commodities (ags, water, etc.). I don't like to be long or short on "paper-based" bets. It's one thing to be holding physical gold in one's hand as your long bet. But who will guarantee your pay-off in "short bonds" if your broker's account goes up in smoke?
Historically, real interest rates have mirrored the price of gold/silver. So in general PM's tend to follow the longer term interest rate/bond curves.
roadrunner
Let me add this cynical aside: if the crowd here is on the other side of my trade of being long bonds, so much the better. While there is a small group of regulars that has some smarts and savvy, overall, the percentage trading play tends to be to go opposite the popular opinion of this forum.
Options and futures that trade on the major exchanges every day are derivatives that make sense. Those have a defined market value and have instant liquidity that day with a bid/sell price. And in total their sum may only total $10 TRILL or less. I would agree that the various derivative-based ETF's are basically scams as well to allow the major banks, traders, hedge funds to skim money off the top. The decay in the leveraged ETF's almost ensures that they all will eventually go to zero. And in many cases they don't even accurately track the item they are supposed to. Try and find a natural gas ETF that actually tracks the index properly. I don't think one even exists even though there are a number of them.
If you're shorting "paper" then you are trying to beat the crooks at their own game. It's not likely you're going to end up a winner. The derivatives that existed prior to the 1990's basically made sense. And much of those were in the daily options' and futures' markets. What has occured since 1998-1999 when derivatives became fully unregulated and commercial banks became leveraged derivative speculators is nothing short of both incomprehensible and criminal.
roadrunner
Forgot about the busted housing market. If people cant afford a 5% mortgage then they wont afford 7%. Enough of this subsidizing the spenders, its time to save the savers.
Knowledge is the enemy of fear
You will never find one that tracks a commodity that is flatlined. You cant expect to pay a premium and still match returns. Just ask those who bought Proof AGE and 90% over the last year.
Knowledge is the enemy of fear
<< <i>. Try and find a natural gas ETF that actually tracks the index properly. I don't think one even exists even though there are a number of them.
You will never find one that tracks a commodity that is flatlined. You cant expect to pay a premium and still match returns. Just ask those who bought Proof AGE and 90% over the last year. >>
look at FCG, forget UNG.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<<If you're shorting "paper" then you are trying to beat the crooks at their own game. It's not likely you're going to end up a winner. The derivatives that existed prior to the 1990's basically made sense. And much of those were in the daily options' and futures' markets. What has occured since 1998-1999 when derivatives became fully unregulated and commercial banks became leveraged derivative speculators is nothing short of both incomprehensible and criminal.>>
Hence my remark, "My biggest concern in messing with a position that shorts bonds is that the whole damn thing might blow up and there won't be any cashing in because there won't be a counterparty left to collect your paper bet from."
In my opinion, the Community Reinvestment Act of 1979, the repeal of the Glass-Stegal Act in 1999 and FASB's sellout to TPTB in 2009 are at the root of what is happening, and the trend still continues. Basically, it is a continual undermining of the basic principals that we have been taught - an honest day's pay for an honest day's work, a deal's a deal, and 2 + 2 = 4. If anyone actually believes that this can end well, they are absolutely delusional.
The goal is to protect our families by protecting our capital and a secondary goal is to make money if it is possible to do so. Money was made in the Great Depression by knowing which way things were headed and getting there before the big money did. I'm a stacker, not a speculator. My risk tolerance is next to zero. Still, nothing remains static and there might (I said might) come a time when it is prudent to use leverage on a small bet that has a potential high payoff. I think that the bond play might be it. Still, what's the difference between that and simply holding physical gold? I'm still trying to see all of the angles.
Bernard Baruch made a fortune in the Great Depression in bonds, but as I seem to remember - his bet was not on hyperinflation, his bet was on deflation.
Still pondering.
I knew it would happen.
Repeal of Glass-Steagal was the primary culprit for our economic woes. To do so, the banking industry basically bought congress and procurred the right to gamble with deposited funds. Worked just great until the music stopped.
More recently, FASB was threatened and directed by a corrupt congress to change the accounting rules. These "mark to market" changes allow financial statements to now carry fictitious values on worthless assets. This didn't cause our problems, it only allows them to be hidden. And, by hiding the problems, there is no pressing effort to fix their causes. So, in a sense changing the accounting rules will have helped cause the next round of problems.
Reinstatement of Glass-Stegal in an even tougher version should be top priority. But, since it would tie the banks hands on gambling (with other peoples money) and require them to go back to being banks, it will never happen.
International banking money (the banksters) controls Washington. Those that see this as a "conspiracy theory" have their heads in the sand.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>A pretty good article discussing bonds as an indicator for gold price.
I agree with the article. My question is, whether gold stocks (gold stock junior index fund) or shorting bonds would be more profitable, and where is the inflection point between them? >>
This is essentially what I've been saying for years. They quit throwing
straws onto the camel's back years ago and started putting bricks on it
instead. Now they seem to be getting out the baseball bats to work on
the legs.
If and when the bond market goes down there's every chance it will go
down hard. All financial instruments will be suspect. Failing this there
would (will) be a steady deterioration in this market after a stunning drop
and partial recovery.
Unfortunately the value of bonds and the state of the economy are in-
timately wed. It's impossible to have significant changes in the value of
bonds without having profound effects on the economy. This situation
will be greatly exascerbated by the way bankers have used these bonds
and their various attributes as the backing for vast quantities of deriva-
tives to fatten their wallets. There will be massive economic swings as
bonds deflate. This could lead to an utter collapse in minutes, not hours.
Emergency measures can keep things going if the plans are in place.
I've always thought we could avoid hyperinflation but it looks more and
more like a collision course every day. So long as we have inflation the
better bet is shorting bonds but if the camel back breaks you'll need to
be in real assets. Some of the derivatives might make trillions with lit-
tle risk but the odds of default are exceedingly high. If bonds weaken
all the markets (including cash) will be for the nimble, if they break they'll
be for the foolhardy.
months after years of nearly inexplicable strenght.
AND sell all government bonds, treasuries etc.
Wonder how that would effect gold/silver going forward?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
HGT actually tracks it quite a bit better than FCG but both have some fairly serious swings away from the norm over the past 3 years. UNG actually tracked it pretty solidly until it fell off the map during the second half of 2009.... but now tracking it very solidly once again. There's apparently nothing like JCC, GLD, SLV, etc. that works for $Natgas.
As bad as derivatives wrecked our economy, somebody made money with them.
Yeah, the banksters and their associates. I don't think the fact that someone makes money on something is a good reason to applaud the transaction. If we give those guys enough leeway they'll make money on everything, including the bankruptcy of over 40 states and the USA itself. During the deleveraging crash of fall 2008 the OOC's Dec. derivatives report indicated that entities did indeed "make on paper" between $7-8 trillion on that fall out. "Great" for them, very bad for the USA and the rest of the world though.
roadrunner
Both will be going a lot higher very soon... Silver is a better deal as the silver to gold ratio is way, way too high.
It also depends on what happens with the CFTC hearing in next few days... 3/25/10 (Thursday 9am... to 3pm...)
Even if this hearing does not go well... it still only a matter of time. Once the Companies that use silver industrially
see that the demand by the public starts increasing... they will start to panic & will want to buy as much as they can
to stock up on as price are surely headed higher... with the shape our country is in... it is a give in. My 2 cents!!
Plus... people are starting to wake up... & will be looking to get silver as protection...
shasta7
<< <i>TBT was up 3.7% yesterday which is a big move in the bond market >>
According to this recent article we should be shorting the bonds. ETF TBT is a good way to do so.
J.D. Rosendahl
On another note, probably a good time to be shorting the Euro with Ultrashort (2X Inverse) ETF EUO.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey