- There is no question that geopolitical uncertainty caused by chaos in the Middle East was the spark that ignited safe-have demand for gold and drove prices up from their seven-month lows; however, there is another factor at play in the marketplace that is helping to support prices at $2,000 an ounce, according to one portfolio manager.
McIntyre said that one of the reasons why gold's negative correlation to bond yields is breaking down is because more and more investors are becoming worried about the U.S. government's fiscal outlook and the growing debt, which has surpassed $33 trillion."The most frightening thing for me is the deficit. I am more focused on the trajectory of where things are going," he said."The rising deficit means the U.S. is not getting its finances in check.
One reason why markets are now focusing on the U.S.' growing debt is because of the sharp rise in interest rates. With the Fed Funds rates between 5.25% and 5.50%, the U.S. government is now spending more money servicing its $33 trillion debt than it spends on national defense. While the Federal Reserve remains primarily focused on inflation, McIntyre said they need to be aware of the potential risk that bond yields could become unanchored to monetary policy.