Time to Sell Bonds and Gold

In previous articles I have emphasized on the bold move of investors to transfer the assets into riskier securities.  It is something that is anticipated since the economy is experiencing uplift, thus the possibility of inflation becomes higher as well.

With this, investors are tempted to put the risk a notch higher when it comes to any of the following: US Treasury bonds, investment-trade corporate bonds and large-cap stocks.  Eventually, small-cap stocks are being chosen as well.  Gold also makes it to the list.  Despite being an inflation hedge, gold is starting to gain popularity as investors are in search for assents that offers inflation protection and at the same time exposure to the economic recovery.  While such is offered by stocks, it is not the same with bonds and gold.  

All of this has created an opportunity to profit from the decline of two of the most popular asset classes of the past two years: precious metals and bonds. Here's why.

This opened up chances in making profits out of the decline of both assets.  Indeed, for the past two years, precious metals and bonds enjoyed a heyday.

To start with, it is important to note that such occurrence is merely a trend.  It was influenced by how the investors see the future of the economy since last August of this year.

What’s fueling this?  It’s the combined effects of a continuously improving economic fundamentals and an active implementation of monetary policy gets the criticisms stronger against the Fed’s “money printing” operation amounting tp $600 billion.

Besides, the increased anticipation of inflation has been there since August, coinciding with Ben Bernanke’s (Fed Chairman) mention of his inclination towards having quantitative easing again.  The first one this year amounted to $1.7 trillion.

Originally, the policy’s goal is to decrease the long-term interest rates in order to attract loans by businesses as well as consumers.  If this happens, the economy is bound to step forward.  However, because of the tendency for an inflation, what happened was the other way around.  There was an increase in long-term interest rates.  For example, there is an increase of 30-year interest Treasury Bond’s interest rates from 5.3% to 4.4% since August.

For the past three months, money has shifted from bonds and gold to stocks with the most risks however small they may be.  Based on the small-cup index known as Russell 2000, large stocks almost doubled its performance in the Dow Jones Industrial Average.

If you want to play in this current trend, the best move is to use ProShares UltraShort Lehman 20+ Year Treasury Bond or what is known as TBT.  This bond doubles the inverse daily return of Barclays Capital 20+ Year U.S. Treasury Index.  When it reached its high last month, it seemed that it’s ready to be moved.  This is because investors are very keen in moving their assets to stocks instead of boring bonds.  The current volume of TBT shows that it is under accumulation.

'Sell Your Gold Reserves', PBOC Researcher Tells the U.S.

If Xia Bin would have his way, the U.S. would cut government spending and sell part of its gold reserves to put more money on its recovery plan and help it balance the budget. Xia Bin, a People's Bank of China adviser, further tells the People's Daily that the U.S. is grappling with 'twin deficits' -- budget and current account. For Xia, the U.S. can resolve this in three steps: first by reducing its military expenses; second, by selling some of its gold reserves; and third, by lifting its limitations on the export on technology.

Xia says that with 8,000 tons of gold in its reserves, the U.S. can easily raise funds to fuel its economic recovery. By doing so, the country doesn't have to exacerbate fiscal deficit. In his interview, Xia didn't say if China would want to buy American gold. China's interests in the U.S. is evident, since it is currently the top foreign U.S. Treasuries holder with over $880 billion. China lags behind the U.S. and Germany in gold reserves, owning only 1,054 tons.

If the U.S. does sell, according to Xia, it will be able to solve its economic woes. To Xia, liquidity isn't a problem in American economics and printing more money will do more harm than good. Unemployment in the country is a 'structural', not a liquidity problem.

In early November, the Federal Reserve announced that it will purchase $600 billion worth of additional Treasuries until June. The target purchase will be approximately $75 billion each month but the program will be adjusted as required.

As Gold Prices Soar, People Find More Reasons to Sell

One of the most popular opportunities for people to sell gold to companies is through gold buying events, such as one hosted by The Gold Refinery at the Kishwaukee Community Hospital. Events such as these attract many Americans, who prefer to sell their unwanted gold at prices higher than those offered by pawnshops. The Gold Refinery, like other businesses engaged in buying gold, accept gold jewelry and gold coins. Most of them will even accept dental fillings. The gold items are later recycled and turned into new jewelry, among other things.

Gold recycling is relatively new in the U.S. and other western countries, although it has been practiced in places like the Middle East and India. According to the World Gold Council, gold prices are soaring because of the global demand for the metal, thanks to increasing consumer demand in India and China and the use of gold components in electronics. This year, gold prices peaked at over $1,400 per ounce, rising 22%.

Belvidere Collectible Coins' Pat Delaney reports that sellers have increased in number in the Belvedere and Genoa stores during the last three years. He believes that people are selling because of the current high prices and because they need access to quick cash. To Delaney, it's the good price working with the bad economy.

To Stephen Karlson, however, there's a far deeper reason for the drive to buy and sell gold. Karlson, who teaches economics at the Northern Illinois University, says that gold prices are affected by the fact that gold is a limited resource. People also prefer to use gold as a hedge against inflation because they are just not that confident about the value of paper money.

Although Karlson thinks that there is nothing wrong about people selling gold to take advantage of the prices, he warns about the possibility that gold buyers could be putting too much money on what is known as a 'speculative bubble'. To him, there just is no way anyone could predict when the bubble will burst.

More People Selling Gold as Prices Rise

Diamonds may be a girl's best friend but it's gold that's paying the bills for many people in these tough economic times.

As the dollar loses its value, the price of gold is reaching record highs.

That has many people turning to cash-for-gold shops now popping up everywhere. It also has many investors putting large amounts of money into the precious metal.

The Texas Securities Commissioner is reminding people what comes up, must come down.

"My instincts tell me that we are going to have a significant decline in gold at some point," said Denise Voigt-Crawford with the Texas Securities Commission. "Investors are going to lose money and it's not going to be pretty."

Crawford adds that before the housing market crashed, many people had the same confidence in real estate that they now have in gold.