Yesterday saw a big gap down opening in the US stock market yesterday that brought in technical buyers and computer buying. Gold also soared above $1500 and managed to close above that level to spur even more buying in the mining stocks. Year to date the GDX ETF is now up more than the S&P 500 is and it is up even greater in the past twelve months.
However, something even bigger has happened in the bond market yesterday that reveals a massive shift in investor psychology now taking place.
Take a look at the Ishares 20+ Year US Treasury Bond exchange traded fund – the TLT ETF – as it simply soared yesterday on over 30 million shares of volume.
This ETF is now overbought in terms of its RSI momentum indicator, which suggests that it will now go sideways for a few months before it can go higher. But it shows you how quickly interest rates have moved in recent weeks as this ETF goes up when US Treasury bond yields go down.
It has been going up when the stock market has been going up since December to tell us that bond investors were not seeing the stock market move as a sign of a coming economic boom, but as a mere rebound following its 20% decline in the fourth quarter of last year.
But more importantly the US Treasury bond yields have now gone down so much that it is going to have a psychological impact on normal investors who want to be safely diversified with their investments. The yield on the 30-year bond got near an all-time record low for it yesterday and the 10-year bond yield briefly fell to 1.6% yesterday and then managed to close the day at 1.71%.
This is now making it very difficult for investors to make ANY money at all in the bond market through interest payments. Take a look at this screen shot from the US Treasury Department showing the yields on its various bonds after the Wednesday close.
Most investors own bonds and CDs with at least a portion of their money. Now as these investments expire they will see that they will not be able to make any decent money at all in the bond market anymore.
Would you want to buy a bond and lock your money up for 10 years to get less than two percent of interest?
This is why gold and silver are now going up the way they are. They are acting as “safe haven” alternatives to not just the stock market, but the bond market too. Interest rates are already so low now that it won’t take much for the Federal Reserve to lower them to zero. If they dropped them last week with the stock market near all-time highs and nothing seemingly wrong with the economy what will they do when the next recession comes?
Everyone knows the answer to that.
They will print money like mad with some new QE money printing operation and that means inflation risk.
And that is another big reason why people are just starting to put some money into precious metals. As more and more people see their bonds expire and come due this trend will only continue.
This is one reason why I like Aftermath Silver and have it as my top stock pick for this month. And it is also why I think you should get into my private Power Investor group where we are all over these trends. To do that just go here:
Also I put up an interview that David Skarica did with Palisade Radio where he shows that all of this is even a bigger problem for European investors that are now facing negative yields: