Gold vs. TBond

[AdamA]

It seems strange to me that both LT Treasuries and gold have both done so well over the past decade.  Seems like the two are playing chicken, and that one will eventually tank and the other rise even more.

Any opinions?  Has this (bull market for LTT's and gold) occurred before?

[MediumTex]

I think part of it is that both gold and treasurys are perceived as safe havens during times of crisis.

Since 2001 or so, the world has been in a low intensity economic crisis.

Ironically, when (and if) interest rates do start rising, it is likely to be bad for both gold and treasurys, since improving returns on new bond issuances will likely lure money out of gold and into bonds.

But it's hard to say how it might actually go down.  Many things can cause interest rates to start rising, some of them good (improving stock market) and some of them bad (currency crisis).

[AdamA]

I think part of it is that both gold and treasurys are perceived as safe havens during times of crisis.

That was my original thought, but I've heard Harry Browne say that it's a misconception.  He believed that cash is a safe haven during times of crisis. 

[Gumby]

I think part of it is that both gold and treasurys are perceived as safe havens during times of crisis.

That was my original thought, but I've heard Harry Browne say that it's a misconception.  He believed that cash is a safe haven during times of crisis.  

Well, that's not entirely true. I think in either his second or third episode he acknowledges that gold can sometimes be a safe haven — such as during a major crisis — but that it generally does poorly during a deflation.

People move towards gold when they are nervous about holding Dollars. Cash is only held because there is no investment that responds directly to a recession or "tight money" — he simply wanted you to have 25% in cash available in case you need it.

[dualstow]

Funny, I was just reading another one of those articles in the Wall Street Journal about how the dollar is going to lose twenty percent of its value and how foreigners are going to buy fewer US Treasuries. Makes me want to buy gold, but I'm sticking with the 4x25.

[TBV]

You could have read the same thing circa 1980, and look how a move to gold would have turned out for you then.

[murphy_p_t]

vs gold in 1980?  any sign that the bernank is going to turn into volker?

[TBV]

My point is that gold looked mighty good until 1980, with people expecting that inflation would just get worse and worse.  By effectively doubling the interest rate, Volcker (a Democrat) changed everything and gold tanked.  As Harry Browne said, we should expect the unexpected.  These days, Bernanke has managed to keep inflation below his 2% target, and expects to be able to keep interest rates comparatively low.  As a close follower of the Japanese economy, he believes that massive debt need not trigger inflation.  If he's right, gold will not outperform.  If he's wrong, and the Chinese, Russians, or oil exporting countries lose confidence in the dollar, then gold would benefit.  But who can say which scenario will prevail?

[fnord123]

But who can say which scenario will prevail?

Exactly - or Bernanke could be replaced in a few years by a hawk who does pull a Volker.  I am not optimistic however, as TPTB seem to like what Bernanke is doing.  That a supposedly liberal democrat like Obama renominated him, and picked Timothy Geithner, and is now picking even more Wall Street friendly people (e.g. Daley), tells me that neither party is interested in a serious change of course, so seeing a hawk be nominated seems unlikely.