Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gold Gets A Boost From Negative Bond Yields

By Frank HolmesCommoditiesJun 24, 2019 12:46PM ET
www.investing.com/analysis/gold-gets-a-boost-of-rocket-fuel-from-negative-bond-yields-200434214
Gold Gets A Boost From Negative Bond Yields
By Frank Holmes   |  Jun 24, 2019 12:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

After breaking out of a five-year trading range, the price of gold surged above $1,400 an ounce last week for the first time since 2013 on expectations of a U.S. rate cut. The 10-year Treasury yield fell to around 2 percent, its lowest level since November 2016. Meanwhile, the pool of negative-yielding government bonds around the world hit a fresh record high of $13 trillion.

Gold
Gold

Gold “may finally be off the leash,” Bloomberg’s commodities columnist David Fickling wrote last Thursday after the yellow metal rallied above $1,350, a number that for the past six years has filled gold bulls with “dread.” Last week I shared my belief that gold would continue to rally if it broke above that key resistance level. Like billionaire hedge fund manager Paul Tudor Jones, I believe gold can now make it as high as $1,700 an ounce “rather quickly” as more generalist investors decide to participate.

And even if gold’s price did hit $1,700, it would still be well within its DNA of volatility. The truth is that it’s a non-event for gold to go plus or minus 20 percent over any rolling 12-month period.

Lower yields have reportedly caught many analysts by surprise. In January of this year, not a single economist among the 69 surveyed by the Wall Street Journal predicted that yields would drop below 2.5 percent by June. The average forecast had been closer to 3 percent.

Some market-watchers are now looking to 1 percent yields. Writing for Bloomberg, longtime financial analyst Gary Shilling says he’s “more confident than ever in that [1 percent] forecast,” due to “chronic low inflation” and the likelihood that the next recession is “already underway.”

Falling bond yields, as I’ve explained many times before, have historically supported the price of gold.

A Record $13 Trillion In Negative-Yielding Debt

That’s especially the case when yields turn negative, as they did all across Western Europe last week following hints that the European Central Bank (ECB) could initiate a new round of quantitative easing (QE). At the annual ECB conference in Sintra, Portugal, on Tuesday, chief banker Mario Draghi stated that in the absence of economic improvement or a lift in inflation, “additional stimulus will be required.”

A number of European countries’ intermediate government bond yields sagged to record lows. French and Swedish 10-year yields fell below 0 percent for the first time ever. Close to 100 percent of all debt issued by the Swiss government, from one-month to 20-year maturities, now carries a negative yield. That’s closely followed by Sweden (91 percent of all debt), Germany (88 percent), Finland (84 percent) and the Netherlands (84).

Western Europe 10-Year Government Bond Yields at Record Lows
Western Europe 10-Year Government Bond Yields at Record Lows

Altogether, a jaw-dropping $13 trillion in global government debt—a new record—is now offering sub-zero yields. This means that investors are guaranteed to end up with less than the bond’s principal amount if held until maturity.

Negative-Yielding Debt Hits A Record
Negative-Yielding Debt Hits A Record

We could see increased foreign demand for U.S. Treasuries because of this, which would push bond yields even lower.

Gold Stocks Trading Higher

Gold stocks also rallied last week, with the FTSE Gold Mines Index advancing more than 5.3 percent on Thursday, its best one-day gain since January 2017. The group is now beating the market for 2019, as of June 21.

Gold Stocks Trading At 2-Year High
Gold Stocks Trading At 2-Year High

Among the companies with the biggest moves last week were Eldorado Gold (TSX:ELD), closing up 12 percent on Thursday in Toronto trading; Coeur Mining (NYSE:CDE) (up 11.1 percent); Yamana Gold (NYSE:AUY) (9.5 percent); Hecla Mining (NYSE:HL) (7.6 percent); and IAMGold (TSX:IMG) (up 6.7 percent).

As rates look ready to decline, I believe it could be prudent right now to make sure you have adequate exposure to gold. I always recommend a 10 percent weighting, with 5 percent in bullion and gold 24-karat jewelry, the other 5 percent in well-managed gold stocks, mutual funds and ETFs.

Gold Gets A Boost From Negative Bond Yields
 

Related Articles

Craig Erlam
Oil Rallies, Gold Vulnerable By Craig Erlam - Aug 11, 2022

Oil  Crude prices are rising after demand destruction fears have become overdone. Nationwide gas prices are now below $4 a gallon, and that should definitely provide some relief...

Gold Gets A Boost From Negative Bond Yields

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email