Bond market on knife’s edge may be moving to full-fledged hemorrhage

The bond market was already on a knife’s edge.

Often considered a relatively safe part of an investment portfolio, the writing for bonds has been on the wall. Bernanke & Co have kept interest rates down for so long, they’ve created such an artificial market for bonds due to their own purchases ($85 billion each month), it has been clear to most that the only thing propping up the bond market has been the Fed and its program of Quantitative Easing.

So there has sat the bond market on a knife’s edge.

Then in June Bernanke uttered hints of tapering QE and sent the markets into turmoil: interest rates spiked, Pimco reported massive outflows from its bond funds, and investors pulled a record $43 billion from taxable bond funds. Bernanke reeled into damage-control mode and promised that the market would continue to get its fix: QE would continue unabated until at least September. The markets breathed a huge sigh of relief and leveled.

Maybe Bernanke can issue a reprieve for bonds for a day, or a week, or a month… but it has remained on that knife’s edge.

Now Detroit has filed for bankruptcy, and municipal bonds appear to be the first sector to fall off the knife’s edge and completely lose it. Fearing that other cities will follow Detroit’s lead, investors have fled for the hills. Following eight consecutive weeks of outflows for municipal bonds, just last week investors withdrew a staggering $1.2 billion from municipal bond funds. It has left some to label the market with the most dire of descriptions: hemorrhaging.

When may the rest of the bond market follow municipal bonds off the knife’s edge?

If your portfolio is exposed to bonds and you too have concerns about its future, get your savings protected with gold and silver. Precious metals were around long before bonds. They’ll be around long after any bond you can invest in today. Call us to get started.

Precious metals on the move

London Fix PM price at week’s end, and change over previous Friday:

• Gold: $1,331.00, up 2.7%
• Silver: $20.06, up 3.1%
• Platinum: $1,428.00, up 0.4%
• Palladium: $731.00, down 1.6%

In the news

How Bernanke is aiding and abetting Wall Street banks
“What Bernanke has done over the past 6.5 years is being a prominent player in aiding and abetting Wall Street banks in hiding their losses through the violation of accounting standards, declaring them Too-Big-To-Fail, and then handing them trillions of dollars in public funds, most recently through QE programs, thus enabling them, the very same banks that would no longer exist without public funds, to once again play the casinos and come up with near record profits and bonuses.” – Raul Ilargi Meijer, the Automatic Earth (link)

Ron Paul: Why Detroit is good for gold “Long term, you can expect governments not to change. We’re going to see more Detroits, and eventually the government of the United States will be somewhat similar to Detroit, because people will give up their confidence in us, they’ll give up confidence in the dollar, and eventually they’ll give up confidence in our military. And then you’ll see some real, real changes in this system, which has been built on a fiat dollar for the last 40 years.” – Ron Paul (article and video)

10 of last 12 years: Gold has gained from August to October
“I could see [gold] moving up to $1,500 between now and October.” – Mark Newton, chief technical analyst at Greywolf Execution Partners (link)

China to overtake India as world’s largest consumer of gold bullion
“China will probably be the world’s biggest gold consumer this year for the first time on an annual basis. That will be driven by both jewelry and investment demand. Jewelry will be the biggest overall demand segment, but investment will grow fastest.” – Marcus Grubb, World Gold Council (link)

Chart of the week

Gold consistently up from August to October

The week ahead

• Federal Open Market Committee to meet; watch out for any policy statements and market reactions
• Consumer confidence report due on Tuesday
• Jobs report for July to be released on Friday