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News & ResearchIt’s Grim Out There, Eh?

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Well I'm sorry, but not all bad news can be bad news for precious metals, can it? I said in one of my previous posts ('You win this time Greenback') that I was worried that the markets were seeking a safe haven and concluding that the US dollar was the best … when in fact it might be more accurate to view it as 'the best horse in the glue factory.'

But the trade still persists - today we have seen a strengthening in the US dollar on the back of fresh, more imminent it seems, worries that Greece will not meet its bailout commitments and that Spain will seek a sovereign bailout sooner rather than later as its own regional finances have hit the rocks.

 

 Dollar

 

May I again reiterate the reality of the economic backdrop here by looking at bond yields available to investors? You can now buy government 10-year bonds offering annual returns of 1.57% in CAD from Canada, 1.41% in USD from the US, 1.42% in GBP from the UK, 1.14% in EUR from Germany or 0.49% in CHF from Switzerland … hardly tempting now, is it? 

But then again, let's stop and have a look at the 2-year US, UK and European bond yields which now offer no more than 0.25% per annum … with German government debt now showing, before brokerage costs, a return of less than zero!

[Anecdotally, if you had decided that buying German government bonds was a good idea at the start of the month and sold GBP to buy the requisite EUR, then you would be showing a loss of over 3.5% on the currency … ]

I cannot help but think that this is getting to the point of mass hysteria - but, as ever, don't take my word for it …

 

Bill Gross, who runs the world's top bond fund at Pacific Investment Management Co., wrote on Twitter that real assets are a "better bet" amid negative real interest rates.

Investors may be able to maintain purchasing power with real assets, Gross wrote. Real assets include inflation-linked bonds, commodities, real estate or some combination of those assets. 

 

Monday July 23, 2012 by Robin Newbould