|That kind of shift takes time to really manifest, but as investors get more risk adverse they look for exactly this kind of transition. It’s a bit of a self-moderating phenomenon, of course, because increased buying makes Treasury prices rise and yields fall, but if interest rates continue to rise amidst a more risk-wary environment, the search for security and yield will always shift interest to bonds.
If this big-picture shift is indeed underway, if this correction brings risk awareness back to the market, then the rest of this bull market will be marked by considerably more volatility. The later stages of a bull market always involve more volatility – the peaks and corrections of greed and fear do that, fueled by confidence in economic acceleration and concerns about rising interest rates and inflation.
Volatility is not bad in itself. In fact, for the metals investor today I would suggest that the return of volatility is good. We need investors to get a bit spooked. As long as fear stayed on the sidelines, investors were going to keep doing more of the same. The return of fear will disrupt the mantra that the rising tide is lifting all boats; value stocks and income stocks will start to stand out versus growth stocks and broad baskets.
And the search for value will bring investors to metals and miners. There is just no other way. I’ve laid the arguments out in the last few issues so I won’t rehash them here, but the mining sector offers rare value in an overvalued market, reliably outperforms in the late stages of an economic expansion, and is supported by a weaker dollar and inflation concerns. Add to that the safe haven argument for gold and the entire metals complex is set up to do well.