Leverage in credit is a mere shadow of what it was seven years ago. Corporate debt ratios among the biggest and smallest companies in the Russell 3000 are now near 30-year lows. U.S. homes are at their highest valuations since October 2007, while house prices climbed for 10 consecutive months, the longest streak since 2006. At the same time, the supply of houses remains near an all-time low, according to data compiled by Bloomberg. The belated recovery of U.S. homeowners means they are feeling more confident.
Meanwhile the rest of the U.S. economy is on the verge of full employment, which helps explain why the Federal Reserve decided last month to raise interest rates for the first time since 2006. The Fed's relationship with global investors is stronger than at any point in the past three decades as measured by the stability of financial assets. In the $13 trillion market for U.S. government debt, the average volatility of U.S. Treasury bonds has fallen 25 percent since Janet Yellen took the chair from Ben Bernanke at the Fed, and is 69 percent of what it was under Alan Greenspan, according to data compiled by Bloomberg.Not So Volatile
For gold enthusiasts, these aren't encouraging signs. The price of gold and the yield on the benchmark 10-year Treasury bond have consistently moved in opposite directions since 2005 and the trend is accelerating, according to data compiled by Bloomberg. That's the surest indication of the gold market cowering before the Treasury market and bowing to the authority of the central bank when it comes to fighting inflation.
Unless the Fed reverses its stated policy of tightening credit gradually over the next two years, interest rates are likely to climb. According to 68 analysts surveyed by Bloomberg, the 10-year yield can be expected to increase to 2.5 percent from 2.1 percent by the end of the second quarter, to 2.7 percent by the end of the year and 2.8 percent in 2017.
If history is any guide, the recent flow of funds into gold won't mean much in the long term. While there were two consecutive months early last year when the SPDR Gold Shares ETF attracted more than 4 percent of its market cap in new money and a similar trend in 2012, these inflows were just blips followed by larger outflows, according to Bloomberg data.
Which brings to mind the proverb that has made gold a problematic investment for the past three decades: Fools rush in where angels fear to tread.