Tags: Gold | Treasuries | safe | haven

Market Rarity: Gold, Treasuries Rise at Same Time

By Dan Weil   |   Wednesday, 23 Jun 2010 12:37 PM

Usually rising gold prices would be accompanied by falling Treasury bond prices, because the fears of inflation and a weaker dollar that push gold up pull Treasuries down.

But that’s not the case now. Investors have moved into both gold and Treasuries as safe havens from Europe’s financial crisis.

Gold recently hit a new record high above $1,250 an ounce, and the 10-year Treasury yield, which moves opposite its price, dropped to a one-year low of 3.14 percent.

"We have a short-term risk aversion and a lack of suitable investment alternatives," Howard Simons, a strategist at Bianco Research, told The Wall Street Journal.

"The policy response of printing money whenever anything goes wrong, telling investors everywhere that paper becomes worthless because they've printed too much — that's how you get the simultaneous reaction of bonds and gold rallying."

That would seem to be a recipe for disaster in the bond market, but Simons says the simultaneous rally of gold and Treasuries may continue.

"This is not a risk-free trade, but it can be a refuge for a while," he said. "Japanese government bonds believe it or not have been a refuge when nothing else has worked."

One heavyweight investor who’s bullish on Treasuries is Pimco’s Bill Gross. He lifted the portion of its Total Return Fund devoted to U.S. government-related debt to a five-month high in April.

The Treasuries rally represents "a flight to liquidity, as leveraged positions are liquidated to preserve capital," he told Reuters.

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Usually rising gold prices would be accompanied by falling Treasury bond prices, because the fears of inflation and a weaker dollar that push gold up pull Treasuries down. But that s not the case now. Investors have moved into both gold and Treasuries as safe havens from...
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