Negative real yields mean opportunity cost of holding gold disappears.
Traditionally Gold has been thought of as a safe-haven asset. But that has not stopped it from rising to 9-yr highs, and within striking distance of its record record high.
Even a stocks and other risk assets continue to rebound from the medical emergency chaos-inspired selloff suffered earlier this year.
Mark this up to opportunity costs.
Efforts by global central banks to push down interest rates, which have fallen into negative territory in real (inflation-adjusted terms) in the US and are negative in many parts of the world, this means that investors who hold gold are not missing out on the yield they would earn from holding bonds in here.
As real yields turn negative, opportunity costs for holding non-yielding assets essentially vanish, particularly when looked through the optics of fiat (paper) fiat money and its purchasing power
“This provides a continuing tailwind for gold”
Thursday, August gold fell 16.80, or 0.9%, to 1,803.80oz, a day after the most-active contract rose 0.6% to settle at 1,820.60, the highest since 14 September 2011.
Gold remains up 0.8% on the week and more than 18% YTD, based on the most actively traded contract.
In June, gold-backed ETFs recorded their 7th month running of global positive flows, adding 104 tonnes, which is equivalent to $5.6-B, or 2.7% of assets under management, according to the World Gold Council.
For 1-H of this year, global net inflows reached $39.5-B, surpassing the previous annual inflow record from Y 2016.
Meanwhile, expectations the Fed could move to impose a form of “yield-curve control,” a policy that aims to keep yields at a particular mark. So, scope for upside in US Treasury yields remain limited
That means if investors do grow concerned about the potential for inflation in the longer term, it will become visible via inflation expectations and negative US real yields.
Rising government budget deficits as a result of fiscal aid/relief/stimulus efforts by governments have not hurt gold.
It all makes for a Bullish backdrop as investors have bought every dip by the precious metal during this years rally.
Now the psych mark at 1,800oz has been cracked and broken. It is likely that investors will only be satisfied if the former high in gold prices at 1,921oz is reached and taken out.
Above that, the Big Round psych mark of 2,000oz is easily reached and exceeded.
“Gold will continue to be a solid investment for an individual’s investment portfolio in both the short-term and long-term market that an average investor should consider for it is very secured with a sound upside potential. However, in order to balance investment risks and investment speculation, it should be a blended asset to one’s portfolio and should represent only a part of one’s investment strategy, not 100% or any way near that than any other investment concentration would reasonably be – balancing investment risks with investment opportunities,.
“Yes, gold will continue to rise as forecast by the most astute investment strategists but like any investment it will also have its price fluctuations – peaks and valleys, typically following the transitional path.so ii must be a watched investment. It will always fluctuate as the world interprets the recovery of various countries’ economic progress from covid-19. In essence, proceed with caution even though gold has historically always been a solid investment, rising consistently over the long-term in value from the old gold-rush days back in the 1800’s.
“Remember when gold was $30 an ounce, then $100 and eventually breaking the $1,000 per ounce barrier. All thought it was over-priced and a highly speculative buy.
“Well, look at what happened, now $1,800 and with the belief that it will go higher. If one would have had the astuteness and flexibility plus liquidity to invest then as the savvy portfolio managers did for safe-haven insurance, not only were the portfolios protected but the asset rose hansomely.
“Well, it is not too last, as we may easily see it in the $2,000-3,000 range and then, the saying will be: Why didn’t I invest then, just like it was at $1,000 not too long ago,,” opines Bruce WD Barren, Chairman of The EMCO/ Hanover Group.
Have a healthy weekend, Keep the Faith