Gold is a buy, but bonds may be a bust

In Monday's installment of Good Buy or Goodbye, Sound Planning Group CEO David Stryzewski joins Yahoo Finance anchor Josh Lipton to discuss why he recommends buying gold (GC=F) while avoiding bonds.

Stryzewski endorses gold as an asset class to buy, pointing out that it has broken above all-time highs and sustained the position. Stryzewski claims $2,100 is the "new foundation," adding, "it's just up from here." He also notes that prices have been climbing because central banks are actively purchasing gold on "an annualized basis," citing China as an example, which he says has acquired "thousands of tons of it." The only potential risk he identifies is the US dollar given the inverse correlation between its pricing and gold's.

On the other hand, Stryzewski recommends steering clear of the iShares Core U.S. Aggregate Bond ETF (AGG). He explains that the Federal Reserve's outlook on rate cuts remains uncertain, and with bonds exhibiting "a seesaw effect" in response to interest rate movements, the value of bonds could take a hit. He also notes that treasury yields are "safer" than the yields on bonds, which is how investors receive returns.

Catch more of Good Buy or Goodbye here, or watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

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JOSH LIPTON: It's a big, noisy universe of stocks out there. Welcome to Good Buy or Goodbye. Our goal, to help cut through that noise to navigate the best moves for your portfolio. Now shifts in credit dynamics in the current US geopolitical landscape may call for a different approach to safeguarding your assets right now. So what's the best way to play your asset allocations?

Let's bring in Sound Planning Group CEO David Stryzewski. David, let's start off with your buys here. And you like the metals. And specifically, what you like David, gold and silver.

Your first reason here, Dave. Let's walk through these points. When you look at the gold market, what you see is that it hit an all-time high. And importantly, you say it stayed above there.

DAVID STRYZEWSKI: Yeah, that's right. So since 2020, there's been four different times that we have, you know, neared these all-time highs, but not broken above. Really big deal here on March 8, we broke above. And so, as we've broken above those levels, that means that there's more room to the upside.

JOSH LIPTON: Got it. Second point here, Dave. When you look at the gold market, what you're pointing out is-- you think what was a ceiling is now actually a new foundation.

DAVID STRYZEWSKI: That's right. When we break above 2100, and then stay above, especially as a week lows, that has now become our new foundation, or floor. And so, I don't think that we're going to be going below 2100 from this point forward. It's just up from here.

JOSH LIPTON: Got it. And finally, talk about the role of central bankers.

DAVID STRYZEWSKI: OK. So ultimately, the reason why the prices have been going up is not because advisors have been allocating instead of 60/40 portfolios into gold. There's not even 1% allocated there.

The reason why it's been going up is because of central bankers like China that have been buying thousands of tons of gold on an annualized basis. Now China doesn't do anything in secret. They're ultimately trying to let everyone know here that this is something that they think is very important. And they're buying thousands of tons of it.

JOSH LIPTON: Now-- so those are three reasons. Before everybody piles in, David, what would be-- our viewers are thinking about making a move into this metal. What would be the risks that you would point out?

DAVID STRYZEWSKI: Well, because the US dollar prices gold-- you know, our-- the dollar is ultimately-- if it gets stronger, that means that the value of gold goes down. But what we're seeing right now is inflation still continuing to rise. And so, the opposite is actually the case. Gold has gone up while the US dollar has actually lost some of its purchasing power.

JOSH LIPTON: All right. So let's turn to what you don't like here, David. So let's-- and let's talk bonds, specifically the AGG. Let's go through those reasons as well. Your chief point-- your first point here is frankly, our expectations of when the Fed's going to cut and by how much, they've been shifting.

DAVID STRYZEWSKI: Yeah. If you just even look at the price movement this year alone, we started out the year with six Fed cuts priced in. Now we're looking at maybe a couple. I think that that might even go down to zero, if inflation continues to peak up.

And so, ultimately, if you own bonds, there's a seesaw effect. If interest rates rise, the value of bonds go down. This is a part of the reason why so much has been lost in bond portfolios, AGG specifically, over the last three years were actually negative. Still 316 this morning.

JOSH LIPTON: You're in good company, by the way. You've seen some noted economists, by the way, also telling their clients, we think there's increasing chances of no cuts. Your second point here. Let's just talk about yield.

DAVID STRYZEWSKI: Yeah. So, you know, if the yield on the AGG is 3.3%, that's one of the reasons why you would own it is that you could get paid. Now the challenge is today that they have to compete with US treasuries that are not only safer, but even on the shorter duration.

So less of that swing risk there with the interest rate movement. You can actually get a better rate of return. And so, I think that a lot of the corporate bonds right now just don't even look nearly as attractive as the safest place yielding higher shorter duration.

JOSH LIPTON: Finally, the reason you would steer clear, or you just talk about frankly refinancing costs.

DAVID STRYZEWSKI: Yeah, that's right. So ultimately, we're looking at a world right now where corporate debt is having to re-metabolize this debt at double the cost of what it was, you know, here in, you know, 2019, 2021, when every good CFO, you know, got as much debt as possible. And now, they're at this point after five-year terms that they're going to have to refinance this.

And so, everyone wants lower rates. Greater liquidity in the banks. The challenge today is that rates are twice as high. And there's not as much liquidity right now in banks. So I, for sure, see-- Chapter 11 is going to be coming strategic defaults.

And of course, the downside with that is that if bonds have defaults, you actually get zero back. You lose it all. So is that really the anchor that everyone wants to be focusing on right now, when we're at these all-time record highs in the US markets?

JOSH LIPTON: And let me ask you-- it's going to be the same question, David. What is the kind of risk to your call, the upside risk here?

DAVID STRYZEWSKI: Yeah. So the upside risks is that, you know, if rates trend down-- like-- you know, the Fed was forecasting 6%, or whatever, on the year. At least the duration on that AGG portfolio is about 8 and 1/2 years.

So you would actually would make money if rates dropped. It's just that the sentiment right now, and where we are today. With unemployment where it's at, CPI rising, all these things. It is not very likely that the Fed is going to be able to reduce rates in a meaningful way, unless something significantly breaks, which would actually be pointing to AGG. And then, I literally wouldn't want it anyway. So--

JOSH LIPTON: All right. Dave, let sum this one up for investors, because there's a lot to go over there. So you're telling investors, listen, buy gold and silver, as they are one of the few asset classes offering both exceptional value and promising growth prospects.

On the other side, though, you're saying avoid the US Aggregate Bond ETF that's amid a lower outlook on a Fed pivot. The option of yield from treasuries and the risks of holding corporate debt. Thank you so much for watching Good Buy or Goodbye. We're bringing you new episodes three times a week at 3:30 PM Eastern.

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