Gold Looking Like "Dead Money," Says Louise Yamada

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The following is a summary of our interview with Louise Yamada of LY Advisors, which can be listened to on our site here or on iTunes here.

louise yamadaGlobal slowdown concerns are picking up, says Yamada, and the nearly four decade downtrend in falling interest rates is at an end. The implications for investors are important and Yamada recently shared her insights on Financial Sense Newshour. Here's what she had to say...

US Outperforming

With global slowdown concerns persisting, the U.S. has remained an outperformer, Yamada noted, with an intact uptrend in place.

We're in a transition from a 37-year falling rate cycle into a new rising rate cycle, Yamada said, and this transition to rising rates takes a long time.

We’ve already seen this transition persist for the last 6 to 8 years primarily because it's battling deflationary pressures, she added. We're at the 3 percent threshold on the 10-year now, she noted, and it's just a question of time before we get through that threshold.

Yield Curve

Should the yield curve invert, it isn’t an immediate sign of trouble for equities. Normally, it takes around 6 months to a year before equities give up after an inversion, Yamada stated.

Now is the time to divest from longer-dated U.S. bonds, and Yamada recommends rotation into short-duration bonds to take advantage of higher rates in the future.

“In my mind, that’s the most important point at this time, especially for older retirees,” she said. “I think it's silly to be caught in a 10-year note at 2 percent if rates continue to climb. … Over the next few decades, rates are inevitably going to lift.”

Gold Looking Like Dead Money

Yamada noted that gold could sink to a low between $1,150 and $1,100. The yellow metal is in a rally within a bear market, she added, and it has failed in all its rally attempts to get back up through $1,400.

Her monthly momentum model has moved to a sell signal, she stated, which suggests there is more risk on the downside. If gold continues below $1,200, it could enter her range of $1,150 to $1,100.

Gold’s relationship to the dollar is less important historically than its relationship to the equity market, Yamada noted. With the equity market outperforming, gold tends to underperform, and as long as the bull in equities continues, gold is at risk or at least dead money.

Oil and Commodities

Copper has been on a sell alert for a while, Yamada added, and it continues to look weak. Overall, commodities have been performing poorly, likely because of equity market strength. The same relationship that gold has with equities applies broadly to other commodities, she noted.

The one exception is oil, which remains in an uptrend. At the moment there isn't anything to suggest oil is going to reverse unless it falls beneath support around $62 to $64.

“It's interesting because this is the one commodity that's been doing better, irrespective of what the dollar is doing,” she said. “So there are a lot of intermarket relationships that have been a little flaky over the last several years.”

Listen to this full interview with Louise Yamada by clicking here. For more information about Financial Sense® Wealth Management and our current investment strategies, click here. For a free trial to our FS Insider podcast, click here.

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