Private Investor's Diary: How I'm preparing for the challenges ahead

The cost of US government debt shot up in October despite the Federal Reserve having cut interest rates by 50 basis points the month before. Yields on the 10-year Treasury rose sharply, from 3.6 per cent in mid-September to 4.35 per cent by the end of October. Typically, you’d expect rates to drop if the market felt inflation was under control. However, concerns remain that inflation could come back next year, and there’s unease about the sheer amount of new debt the US needs to issue to cover its budget deficit. Many are still determining if president-elect Trump will bring the deficit down soon. Much will depend on how successful Elon Musk is at reducing government spending.

on how successful Elon Musk is at reducing government spending.

The cost of servicing US debt is now more than the country spends on its defence. This interest burden translates to about $3,500 per person. As old debt – issued initially at much lower rates – comes due over the next five years, it should increase this burden further. Some prominent investors think we could see 10-year Treasury yields rise to 6.0 per cent. This prospect is driving gold prices higher, with the precious metal climbing 4.0 per cent in October alone (up 32 per cent this year) to reach $2,734 per ounce. The People's Bank of China and central banks in Russia and other countries are shifting away from US Treasuries and increasing their gold reserves instead.