Deepening negative real yields in the US Treasury market are driving a this rally in gold that is seeing the precious Yellow metal moving toward record highs.
Bullion has gained 24% this year and is about $40 from an all-time high. And with 5-yr Treasuries now yielding -1.16% once the effects of inflation are stripped out, the lowest close in 7 yrs, there’s little reason to expect a slowdown in precious-metal buying as investors worry about the economic outlook, prospects for further outbreaks of C-19 coronavirus chaos and the impact of the Fed’s bond buying.
Gold is a superior form of purchasing power protection and as real rates dive significantly below zero here, gold is relatively more attractive as a hedge,” said the CEO at Sprott Inc., a precious metals specialist with about $8-B under management.
With investors looking for safe-haven assets that will not lose value, they are investing record amounts of money into precious-metal ETFs.
So far this year, ETFs have increased their gold holdings by 28% to more than 105-M oz, according to data taking the total value to $195-B today.
Real yields are also driving investors away from USDs, which is trading near the lowest since March against a basket of currencies, .DXY is off 2.8% on the week so far.
Silver has also posted a strong rally as the forces driving gold spill into other precious metals. The spot price has gained almost 20% in the past week to around 23oz, the highest in 7 yrs.
The rally may become self-perpetuating as the publicity gained by higher prices draws more people to invest in precious-metals funds.
The combination of low-to-negative government bond yields plus a weakening Buck, and most importantly, massive central bank accommodation, supports financial demand.
“This relationship between gold and real yields has held for the last decade and recent central bank interventions have reinforced the case for holding gold as a portfolio diversification tool,” said economist Bruce WD Barren in an interview Friday.
Gold 1st breached 1,000oz during the global financial crisis in Y 2008 before reaching a record 1,921.17oz in September 2011. This year’s rally puts it on course for its biggest annual gain in 10 yrs.
The damage inflicted to USD as a result of fiscal spending and falling real interest rate due to monetary easing provide Bullish factors for gold, As long as this environment continues, gold will continue to charge North
Have a healthy weekend, Keep the Faith!