Gold Gets A Boost Of Rocket Fuel From Negative Bond Yields

Gold Gets a Boost of Rocket Fuel From Negative Bond Yields. What’s Next for the Yellow Metal?

Ladies and gentlemen, we have liftoff!

After breaking out of a five-year trading range, the price of gold surged above $1,400 an ounce last week for the first time since 2013 on expectations of a U.S. rate cut. The 10-year Treasury yield fell to around 2 percent, its lowest level since November 2016. Meanwhile, the pool of negative-yielding government bonds around the world hit a fresh record high of $13 trillion.

Gold breaks out of its fiver year trading range

Gold “may finally be off the leash,” Bloomberg’s commodities columnist David Fickling wrote last Thursday after the yellow metal rallied above $1,350, a number that for the past six years has filled gold bulls with “dread.” In last week’s Frank Talk Live video, I shared my belief that gold would continue to rally if it broke above that key resistance level. Like billionaire hedge fund manager Paul Tudor Jones, I believe gold can now make it as high as $1,700 an ounce “rather quickly” as more generalist investors decide to participate.

And even if gold’s price did hit $1,700, it would still be well within its DNA of volatility. The truth is that it’s a non-event for gold to go plus or minus 20 percent over any rolling 12-month period.

Lower yields have reportedly caught many analysts by surprise. In January of this year, not a single economist among the 69 surveyed by the Wall Street Journal predicted that yields would drop below 2.5 percent by June. The average forecast had been closer to 3 percent.

Some market-watchers are now looking to 1 percent yields. Writing for Bloomberg, longtime financial analyst Gary Shilling says he’s “more confident than ever in that [1 percent] forecast,” due to “chronic low inflation” and the likelihood that the next recession is “already underway.”

Falling bond yields, as I’ve explained many times before, have historically supported the price of gold.

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