Predict Gold Trends With The 2-Year T-Bonds Dating Back to 2008

Let me tell you a little secret – bonds are the financial world’s classy IOUs. Picture this, when you buy a bond, you’re essentially lending your money to the issuer, which can be a government or a corporation. They’re looking for some capital, and you’re looking for a reliable investment. It’s like an arranged marriage, agreed upon for a fixed period of time.

In this financial matrimony, the issuer commits to pay you a specified rate of interest throughout the bond’s life and repay the principal when the bond matures, that’s when it’s due. It’s like your spouse promising to cook for you and do the dishes – a sweet deal, right?

The Specifics of Bonds

Like any other contract, each bond comes with specific terms and conditions, be it the interest rate, also known as the coupon rate, the maturity date, and other possible features. These are all set out in black and white beforehand.

Government Bonds and Treasury Bonds

Government bonds, which are essentially IOUs from national governments, are considered safe investments. After all, they come with the full faith and credit of the issuing country. Uncle Sam, for instance, calls them Treasury bonds (T-bonds).

The 2-Year U.S. T-Bond

Speaking of T-bond, let’s have a chat about the 2-year U.S. T-bond, also known as a T-note. A 2-year T-note is a U.S. Treasury note that matures in, you guessed it, 2 years.

The Gold-T-Bond Connection

Now, I must admit I’m no finance guru, but I’ve observed an interesting trend regarding the 2-year T-note, particularly when it comes to gold. Don’t ask me why this happens, because it’s a mystery to me. My best guess is that it’s due to the note being close to the short end of the yield curve while also giving us a glimpse two years into the future.

But, the why isn’t our main focus right now. What I want to highlight is that since 2007, the 2-year T-note has been a pretty reliable indicator for when to buy or sell gold and silver. In future articles, I will further demonstrate this fascinating relationship, tracing it back to 1999. But for now, let’s stay in the present.

An Illustrative Example

Take a look at this graph below. In June 2007, the 2-year T-note peaks at 5.107%, then starts a downward journey over the next 4 years. It bottomed out at a modest 0.157% in September 2011, then started drifting upwards. Below that line is the gold chart, which showcases a strikingly similar pattern.

Now, if you’re a keen observer, you might have noticed what I’m getting at here. From June 2007 to September 2011, gold price followed a bullish trend, moving from a meager $643 USD to a whopping $1920.

Calculating the Annual Return

We can use the formula to calculate the annual return:

Annual Return = (Ending Value / Beginning Value) ^ (1 / Number of Years) – 1

Applying the formula to our gold price data:

Annual Return = ($1,900 / $650) ^ (1 / 4) – 1

The approximate annual return of gold from June 2007 to its peak in 2011 was an impressive 33%.

The Infamous ‘Gold Winter’

However, similar to the infamous ‘Crypto Winter’ that took the Bitcoin world by storm (a topic I promise to delve into soon), gold too experienced its chilling phase that spanned lasting 7 long years. We at Gold Silver Mart affectionately label it ‘The Gold Winter.’ This period left many investors frozen in their tracks, some of whom are still trying to thaw out from its biting impact. But history has a knack for repeating itself, doesn’t it? So, in November 2018, the 2-year T-note peaked at 2.973% and began descending for about two years, and gold? Well, I’ll let you figure out the rest.

A Word of Caution

Of course, this relationship isn’t infallible; there are no guarantees in the world of finance. It’s just one of the many tools that might help guide us on our investment journey in the precious metals market. While this bond-to-gold relationship has held up in recent history, keep in mind it might change in the future. We saw no such correlation before 2007, and it’s quite possible it might dissolve again.

Looking to the Future

But what remains constant is that with God’s help, some diligent studying, and strategic moves, we can all navigate through these financial ‘crises’. Emerging on the other side, not just unscathed, but also better off – with enhanced purchasing power and a richer understanding of the financial world.