They think rising rates are going to force the Fed to tighten monetary policy sooner than expected. But Peter says there is a reality out there that nobody wants to acknowledge.
Early Wednesday morning, long-term interest rates spiked. The yield on the 10-year Treasury pushed to 1.43%. The yield on the 30-year nearly hit 2.3%. This still isn't particularly high in historical terms, but it was the highest yield since the pandemic collapse. More significantly, it continues the relentless move-up in interest rates that we've seen over the last couple of months. Peter said the only thing he thinks can change this course is a massive increase in the Federal Reserve's quantitative easing. The central bank will need to buy more bonds to buoy the market and hold interest rates down.
But Wall Street apparently sees things differently. As soon as interest rates spiked Wednesday morning, gold sold off. That was the knee-jerk reaction in the precious metals market to the surge in bond yields.
This is because Wall Street traders are convinced that rising bond yields mean the economy is really strong, and because the economy is really strong, the Fed is going to raise rates sooner rather than later, and a premature tightening is going to push up the dollar, and a strong dollar is going to be bearish for gold."
But Peter said they are completely wrong in this assessment. Bond yields are not spiking because the economy is strong. They are spiking because of inflation.
Bond yields are going up because there is a massive supply of bonds because we have massive deficits. And even though the Fed is buying a lot of bonds, they ain't buying enough. So, those extra bonds, there's no buyer, and so the price keeps falling."