Analysts have been calling for the end of the three decade old bull market in bonds for several years now. To be sure, if transitional market forces (read non-government intervention) were allowed to exert force on the bond market, rates would be much higher than they are today. So why does Bill Gross see 2.6% on the 10 year Treasury as the line in the sand?
According to Gross, it has some to do with inflation. If yields pass that mark, then it will indicate that inflation has taken hold after years of attempts by global banks to do just that. However, this is a very sharp double edged sword. Higher rates due to an economy that is heating up would cause government budget deficits to explode to the upside. That in turn would hasten a looming sovereign debt crisis.
We would tend to agree that the 2.6 to 3% range is a key to watch in US Treasuries. Rising rates due to dollar strength are negative for the price of gold and silver. However rising rates due to inflation would be bullish for gold and silver. Right now we are in a tug of war between these views. Either way, it appears as though 2017 may be a major transition year for long term rates – and for the long term price of gold and silver.
This is another reason why it is important to keep accumulating these assets. They act as a hedge against both inflation and financial system instability. In the years ahead, we may see either – or both.