4 ms·

If you're worried about interest rate risk, a short term bond fund will mitigate that risk. Also keep in mind that a 'market crash' for bonds is only a ~10-15%

by beoba 16y ago

If you're worried about interest rate risk, a short term bond fund will mitigate that risk. Also keep in mind that a 'market crash' for bonds is only a ~10-15% drop. Wait a minute, you're worried that bonds have had a big run up in prices and are now overvalued, yet you want to get into precious metals?

scotch_drinker 16y ago
I think the reasons for the bond run up and precious metals run up are different. At the risk of oversimplifying, the appreciation in bonds is due to a flight to safety and the US Fed instituting a pretty substantial bond buying program to keep interest rates down. Eventually those factors will correct and bonds will follow. Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth along with a huge increase in the Fed balance sheet. Also, there is some evidence that large US banks have conspired to keep the metals market artificially constrained, especially the silver market. While precious metals have had a huge runup, the fundamentals are still strong for future appreciation (large Fed balance sheet for the foreseeable future, unstable monetary policies) and therefore, I don't see the risk to the downside in the metals.
- _delirium 16y ago
  > the appreciation in bonds is due to a flight to safety > Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth Isn't that also a flight to safety, then? Not an identical variety of safety, but both seem to be driven by the same move-your-wealth-somewhere-safe sentiment that the financial crisis induced; some people picked U.S. treasuries, other people picked gold or copper or whatever. It's possible that one of those flights will be longer-lasting, though, if that's what you're predicting. Gold prices in particular are also very dependent on central bank policy, because a large portion of the current value of gold is dependent on large quantities being held out of the market by central banks. It's close to fiat money in that sense, in that its value is dependent on central-bank policy propping it up. I'd be willing to grant that the policy risk is lower, though: while Federal Reserve action could tank either treasury prices or gold prices, the likelihood of the Federal Reserve tanking treasury prices is probably higher. But if it decided to sell of any significant portion of its 9,000 tons of gold to raise revenue...

by beoba 16y ago

scotch_drinker 16y ago

I think the reasons for the bond run up and precious metals run up are different. At the risk of oversimplifying, the appreciation in bonds is due to a flight to safety and the US Fed instituting a pretty substantial bond buying program to keep interest rates down. Eventually those factors will correct and bonds will follow. Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth along with a huge increase in the Fed balance sheet. Also, there is some evidence that large US banks have conspired to keep the metals market artificially constrained, especially the silver market. While precious metals have had a huge runup, the fundamentals are still strong for future appreciation (large Fed balance sheet for the foreseeable future, unstable monetary policies) and therefore, I don't see the risk to the downside in the metals.

_delirium 16y ago
> the appreciation in bonds is due to a flight to safety > Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth Isn't that also a flight to safety, then? Not an identical variety of safety, but both seem to be driven by the same move-your-wealth-somewhere-safe sentiment that the financial crisis induced; some people picked U.S. treasuries, other people picked gold or copper or whatever. It's possible that one of those flights will be longer-lasting, though, if that's what you're predicting. Gold prices in particular are also very dependent on central bank policy, because a large portion of the current value of gold is dependent on large quantities being held out of the market by central banks. It's close to fiat money in that sense, in that its value is dependent on central-bank policy propping it up. I'd be willing to grant that the policy risk is lower, though: while Federal Reserve action could tank either treasury prices or gold prices, the likelihood of the Federal Reserve tanking treasury prices is probably higher. But if it decided to sell of any significant portion of its 9,000 tons of gold to raise revenue...