What Happens to Gold When Bonds Are No Longer a Safe Haven?

By Clint Siegner

U.S. Treasury debt has long been considered a “risk-free” asset. Gold bugs hold a different definition of risk free, but for most of Wall Street and the investing public the assumption has been that there’s zero chance the U.S. government will ever default on its debt.

The truth is finally dawning on this crowd. There is more than one way for the U.S. to default.

Austrian / Hungarian 100 Corona / Korona - .9802 Ounces Gold

Austrian / Hungarian 100 Corona / Korona – .9802 Ounces Gold

View Details

The government might not welch on payments, though the chances of that certainly aren’t zero. It can surreptitiously default through inflation. What’s more, the risk of that type of default is 100% – it is happening now and figures to get worse.

Investors traditionally turn to bonds when there is economic uncertainty. Most retirees have been coached to overweight bonds to reduce volatility and risk in their portfolios. The past couple years have delivered a wakeup call.

Gold and Silver: Industry-Best Customer Service at Money Metals (Ad)

2022 was the worst year ever in the Treasury market. The 10-year yield jumped a full 2%. This year the carnage could be even worse as the bond bear market intensifies.

Banks and other financial institutions look at Treasuries as the ultimate collateral and as a Tier 1 reserve asset. But they, too, are getting a jolt of reality.

Small and mid-tier banks have been decimated by losses on the bonds held on their balance sheets.

The Federal Reserve implemented a backdoor bailout of those banks earlier this year.

2023 Silver American Eagle - 1 Troy Ounce, .999 Pure

2023 Silver American Eagle – 1 Troy Ounce, .999 Pure

View Details

Fed officials created their “Bank Term Funding Program” to allow member banks to borrow against underwater bonds at 100 cents on the dollar rather than book losses on their actual market value. It’s an alternative to the fire sale of those deeply underwater assets to raise liquidity.

The loans have a 1-year term and the program was intended as a short-term measure.

The Fed seems likely to renew the program indefinitely, or else the reckoning for banks will be biblical. Regardless of what happens, institutions have learned a lesson.

The question is what happens when banks and investors decide that Treasury debt is anything but “risk free.” The list of “go to” safe haven assets is small. If bonds no longer fit the bill and U.S. dollars are losing appeal for similar reasons, gold may be the last refuge.

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named “Best in the USA” by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
Become a Patron!
Or support us at SubscribeStar
Donate cryptocurrency HERE

Subscribe to Activist Post for truth, peace, and freedom news. Follow us on SoMee, Telegram, HIVE, Minds, MeWe, Twitter – X, Gab, and What Really Happened.

Provide, Protect and Profit from what’s coming! Get a free issue of Counter Markets today.

Activist Post Daily Newsletter

Subscription is FREE and CONFIDENTIAL
Free Report: How To Survive The Job Automation Apocalypse with subscription

Be the first to comment on "What Happens to Gold When Bonds Are No Longer a Safe Haven?"

Leave a comment

Your email address will not be published.