U.S. Bond Markets Are Driving Force Behind the New Gold Rush
Low real yields strengthen incentive to buy commodities: SMBC
Investors are pouring record amounts into precious-metals ETFs
Deepening negative real yields in the U.S. Treasury market are fueling a frenetic rally in gold that’s boosting the precious metal toward a record.
Bullion has gained 24% this year and is about $45 from an all-time high. And with five-year Treasuries now yielding -1.16% once the effects of inflation are stripped out, the lowest close in seven years, there’s little reason to expect a slowdown in precious-metal buying as investors fret about the economic outlook, prospects for further outbreaks of Covid-19 and the impact of central-bank 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 Peter Grosskopf, chief executive officer at Sprott Inc., a precious metals specialist with about $8 billion under management.
With investors looking for safe-haven assets that won’t lose value, they’re pouring record amounts into precious-metal exchange-traded funds. So far this year, ETFs have increased their gold holdings by 28% to more than 105 million ounces, according to data compiled by Bloomberg, taking the total value to $195 billion.
Real yields are also driving investors away from the U.S. dollar, which is currently trading near the lowest since March against a basket of currencies, Makoto Noji, chief foreign-exchange and bonds strategist for SMBC Nikko Securities Inc. in Tokyo, wrote in a research note.
Silver has also posted a spectacular rally as the forces driving gold spill into other precious metals. The spot price has gained almost 20% in the past week to around $23 an ounce, the highest in almost seven years.
The rally may become self-perpetuating as the publicity gained by higher prices draws more people to invest in precious-metals funds.