Gold Benefiting From Bond-Market Uncertainty, Confusion - Analysts
(Kitco News)- Confusionand uncertainty reign in financial markets, helping gold prices rally in theface of higher bond yields, as traders continue to assess whether or not Chinawill continue to buy U.S. Treasuries.
EarlyThursday, Chinese officials denied reports that the central bank is looking atslowing its U.S. bond purchases. According to reports, while the central bank is diversifying its foreign-exchangereserves, it is not slowing or halting its purchases of U.S. Treasuries.
However,despite China attempting to reassure bond markets, the yield on U.S. 10-yearnotes remains at its highest level since mid-March.
Traditionally,higher bond yields are negative for the gold market because it increases theopportunity costs of holding the precious metal. Gold is holding near3.5-months highs Thursday despite higher bond yields. February gold futureslast traded at $1,322 an ounce, up 0.20% on the day.
BartMelek, head of commodity strategy at TD Securities, said that gold isbenefiting from growing uncertainty in financial markets. He added that whileChina has dismissed reports that it is looking at reducing its bond purchases,the idea is still out there.
“Once thatidea is out in the marketplace, it is hard to take it back,” he said. “I’m notsure that markets believe everything that is being said and that is good forgold.”
Melek saidthat adding to the uncertainty is the fact that the U.S. dollar is weaker asbond yields push higher.
“Thistells me that markets don’t have a lot of confidence in the U.S. at themoment,” he said.
VinceLanci, founder of Echobay Partners, said that the fact that gold can rally in ahigher bond environment is further proof that the yellow metal has entered anew phase of its bull market.
“Chinabuying or not buying Treasuries in the short term is not the big factor... thefact that gold rallied on it means the path of lesser resistance, for now, isup,” he said.
George Gero managing director at RBC Wealth Management, alsosaid that he is optimistic on gold as he expects hedge funds to continue todiversify into gold as uncertainty and inflation pressures build in themarketplace. He added that it is possible for gold and bond yields to risetogether.
“Right now the bond market is doing its own thing and sois gold,” he said.
Gero added tthat for him higher bond yields signalrising inflation pressures, which will ultimately be positive for gold, whichis seen as a hedge against inflation.
By Neils ChristensenFor Kitco News
Follow neils_C
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.