Gold Prices: Investors Don't Fear 3% Bond Yields
(Kitco News)- The gold market does not have to fear rising bond yields,as inflation expectations are keeping real interest rates muted, according toone investment firm.
In a report, Monday, Maxwell Gold, director of investmentstrategy at ETF Securities said that gold prices still have room to push highereven as the yield on 10-year notes rises to 3%. The comments come as 10-yearbond yields have increased to 2.86%, their highest level in 4-years.
Despite rising yields, the gold market is starting theweek on a positive note, as the price bounces further off last week’s five-weeklow. April gold futures last traded at $1,327 an ounce, up 0.86% on the day.
Traditionally, higher bond yields are negative for goldbecause they raise the yellow metal’s opportunity costs.
“The true driver for gold is real interest rates, whichis why even though current US yields approach 3%, gold investors should notpanic,” said Gold. “Inflationary pressures and inflation expectations continueto rise commensurately keeping real interest rates low and range bound.”
Not only are investors turning to gold as a hedge againstinflation, but Gold said that the yellow metal’s safe-haven appeal should alsonot be ignored.
“Additionally should rising yields spark furthervolatility in equity markets, gold may benefit as investors flock to defensiveassets and risk hedges such as the yellow metal given its historically negativerelationship with persistent equity market drawdowns,” he said.
Along with low real interest rates, ETF Securities notedthat a weaker U.S. dollar has helped drive gold prices in the first month ofthe year. The firm noted that gold prices 3.32% in January while the U.S.dollar fell 3.25% last month.
However, a resurgence in the U.S. dollar has helped capgold’s recent gains as tested support above the critical psychological level at$1,300 an ounce.
The investment firm also sees the potential for silverprices, reiterating its target of $19 an ounce in the first half of the year.
The comments come as the silver market continues tostruggle to find investor interest. Silver prices have managed to bounce off anearly-two month lows but remain well below the psychological level at $17 anounce. March silver futures last traded at $16.56, up more than 2% on the day.
By Neils ChristensenFor Kitco News
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