Gold rush heats up as sub-zero yields spread

  • Business
  • Saturday, 20 Jul 2019

Gold, once mocked for its lack of yield and practical use, offers something the growing pile of negative-yielding bonds doesn’t – inflation protection.

Plus, it makes a great doorstop.

As holders of promissory notes issued by sovereigns and companies watch the real value of their savings drain away amid central bankers’ efforts to kick-start growth, the allure of one of the oldest investment assets has become ever stronger.

Data show just how popular gold has become – and how closely it’s linked to the downward spiral in yields.

For five years, resistance above US$1,350 an ounce was too much for bullion to overcome.

That changed in June, as it became clear the Federal Reserve was heading for a round of interest-rate cuts.

Spot prices touched US$1,453.09 yesterday, the highest level since May 2013 as global factory output slows and the market debates whether chairman Jerome Powell will cut rates by as much as 50 basis points in July.

Gold’s inflation-busting properties and low opportunity cost when interest rates drop have never been as important as now.

The inverse relationship between bullion’s price and US real rates expectations, as measured by the yield on five-year inflation-linked Treasuries, is the strongest it’s ever been.

The correlation measured over 60 days hit -0.7 as bullion climbed. — Bloomberg

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