For most of the past half century,UfogamingblockchainAs a buy-and-hold asset, Treasuries easily outperformed gold. But now the status of US debt as the ultimate safe haven is facing one of the biggest challenges to date.
Traditionally, investors have flocked to buy Treasuries as a super-safe investment with stable returns and the support of global economic powers. These attributes make Treasuries a better investment than gold for buyers from individuals to sovereign states, because gold does not generate cash flow like bonds, but it is still coveted as a scarce commodity and as a hedge against inflation.
The relationship has changed recently, and the trend has become positive for gold. The Bloomberg Treasury total return index is expected to see its third annual decline in four years, widening to 11 per cent from its peak in 2020, according to the data. Gold, by contrast, hit a record high this week and has returned 15 per cent so far this year.
According to Kristina Hooper, chief global market strategist at Invesco, the difference between the two assets suggests that investors are more concerned about the surge in US government debt and therefore prefer physical assets. "the choice of safe-haven asset classes has become gold, not US debt," she said. The bigger themes are concerns about large amounts of debt and concerns about the unsustainable fiscal position of the United States. "
As a long-term investment, gold has now outperformed US debt. The dollar invested in gold 51 years ago is now worth $2314, $172 higher than the return of the first Bloomberg Treasury index launched in 1973 (this comparison does not take into account the storage cost of holding gold).
The recent struggle in the US bond market is easy to understand, mainly because the Fed's aggressive monetary tightening since 2022 has pushed up yields. Recent comments by Fed officials suggest that policymakers want to keep interest rates high for a longer period of time.
At the same time, deep-rooted concerns about rising US government debt and deficits have intensified. Since the epidemic, U. S. government debt has accelerated, almost doubling in the past decade to about $35 trillion.
More difficult to interpret is the surge in the price of gold. In theory, rising real interest rates should depress the price of gold, making such unyielding assets less attractive. But the price of gold rose in the face of rising real interest rates. Analysts point out that central bank purchases are the main force driving up gold prices. The people's Bank of China, for example, has been linked to increase its gold holdings for 18 months.
Of course, the performance of US Treasuries relative to gold has been different over the past few decades, lagging behind at some point, but will lead again. Gold's excellent performance is usually accompanied by higher volatility. Gold prices, for example, soared in the late 1970s, when investors sought to hedge against inflation.
In the 1980s, former Federal Reserve Chairman PaulUfogamingblockchain? Bonds began to catch up after Paul Volcker's campaign to cool inflation opened a 40-year bull market in fixed income markets. The yield on 10-year Treasuries fell from nearly 16 per cent in 1981 to 0.3 per cent in 2020. As bond prices rose, investors made a windfall. But low yields planted the seeds for subsequent declines, including an increase in interest rates by the Fed to curb inflation, causing Treasuries to fall by an unprecedented 12 per cent in 2022.
But according to Julian Brigden, co-founder of Macro Intelligence Partners, the current underperformance of Treasuries is not just temporary, because an ageing population and shrinking savings mean there is not enough demand to meet the growing debt supply. "We are in a bear market in structured bonds," he said bluntly. Bonds are not a good hedging tool. Gold is taking over the market. "