Following the Federal Open Market Committee meeting last week, Federal Reserve Chair Janet Yellen made it clear (again) that interest rates would not be raised until inflation gains more steam. It’s a prime example of gold’s Fear Trade, which occurs when investors buy gold out of fear of war or concern over changes in government policy.
The reason for deteriorating liquidity in bond markets is due in part to yields being unnaturally low. If you price bonds too highly, few investors want to buy them without the unconditional support of the central bank as a ready buyer.
With the Federal Reserve intent on holding the federal funds rate at 0%-0.25% until unemployment falls to 6.5%, or even 6.0%, U.S. savers require patience – it could be up to two years before any increases in short-term interest rates.