Don't Fear Rising Treasury Yields, Gold Market Still Has Value - ETF Securities
(Kitco News)- Gold investors don’t have to fear rising bond yields asbullish factors are growing in the marketplace, according to one marketanalyst.
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| Maxwell Gold, director of investment strategy at ETF Securities by Aberdeen Standard Investments |
In a telephone interview with Kitco News, Maxwell Gold, director of investment strategy at ETFSecurities by Aberdeen Standard Investments said that although 10-year bondyields are holding near seven-year highs, real yields are slightly just above1% which still makes gold an attractive value asset for investors. He notedthat historically, real rates have to push above 2% before they start to have asignificant adverse effect on gold.
Gold’s comments come as the yellow metal struggles to gainenough momentum to push back above $1,200 an ounce, which many analysts see asa new critical “line in the sand for” the market has to regain. December gold futures last traded at $1,192.90 an ounce, up 0.11% on the day.
According to Gold, it’s not precious metals investors whoshould be worried about higher interest rates, but equity investors. Since thestart of the month and the fourth quarter, the S&P 500 has lost 3%. Theindex last traded at 2841, down 1.37% on the day.
“If rates continue to rise that cause a revaluation in equitymarkets, leading to higher volatility,” he said. “That could be a strongcatalyst for gold given the large bearish speculative positioning in themarketplace.”
Gold added that he would expect to see investors move intodefensive assets like gold as equities continue to fall and volatility picksup. In this scenario bond yields, the U.S. dollar and gold can all jump intandem together, he said.
Not only will higher interest rates and bond yields impactequity valuations, but Gold also noted that they could affect economic growthas U.S. government deficits continue to grow.
Some analysts have noted that government debt has risen atthe fast pace in history, outside of a recession.
“We have hit the fiscal stimulus at the time in the marketcycle where it is not truly needed and that is the big issue,” he said. “Fiscalpolicy and monetary tightening will soon be coming to a head and is a concernfor markets.”
Not only do higher interest rates weigh on growth, but Goldsaid he expects the increase in government spending will push inflation higherthan economists and the U.S. central bank is assuming, which would keep realrates low and benefit gold.
Although Gold still sees a strong bullish case to own gold,he does admit that there are unknown short-term factors -- particularly theimpact of ongoing trade issues between China and the U.S. -- that could pushprices lower.
The recent trade war has significantly weakened the Chineseyuan against the U.S. dollar, which has been a drag on gold prices.
“Ifwe see further weakness in the yuan, we would expect to see lower gold prices,”said gold. “However, if the Chinese economy weakens significantly that willimpact global growth and long-term I think that will drive investors to gold.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |