Precious metals regain popularity as negative-yield pain deepens

Safety-seeking investors and speculative hedge funds are piling in after years of tepid interest

Precious metals regain popularity as negative-yield pain deepens

For years, it seemed that precious metals would remain a niche investment, appealing only to gold bugs and those willing to wade into the world of commodities trading. But that has changed as a bleak economic picture develops around the world.

“Investors are piling into precious metals at the fastest clip in years, driven by a plunge in global bond yields that has fueled a search for assets that can hold their value during troubled times,” reported The Wall Street Journal.

Arguably the metal of the moment, gold has reached its highest level in six years as everyone from central banks to retail investors pile in. The third quarter of 2019 has seen silver and platinum outpace all other major asset classes; palladium has risen by around 30% year-to-date.

Bets that the era of meagre debt yields would end as the world’s central banks start raising interest rates have not materialized. Instead, the continuing trade drama between the U.S. and China has hurt the future prospects of nearly every major economy, forcing many central banks — even those that have gone below zero — to reduce rates further.

Investors have readjusted their expectations accordingly: many have taken a shine to gold and other precious metals as negative yields pervade as far and wide as Europe and Japan. The door is open for even further reductions as the European Central Bank and Bank of Japan deploy more monetary stimulus. Negative-yielding debt has been reported to account for a third of tradeable bonds worldwide, including over US$15 trillion in government debt around the world.

“There is so much flight to safety right now and metals is where a lot of that money is going,” Bob Haberkorn, senior commodities broker with RJO Futures in Chicago, told the Journal. “Traders that had been out of the metals market are coming back…and there’s been a lot of buying from new accounts.”

The haven assets are also looking attractive relative to many currencies — including the euro, the British pound, and the Chinese yuan — that are plumbing their lowest levels in years. The fact that gold and other precious metals fall outside the control of any central bank creates an additional incentive to consider exposure to them.

Gold has advanced to US$1,550.30 a troy ounce, the highest it’s been since April 2013. Net bullish gold bets from hedge funds and other speculators have risen to their highest since 2006, the earliest year reflected in Commodity Futures Trading Commission figures. The World Gold Council has reported a net inflow of US$6 billion into gold-backed ETFs and similar products in August, marking a third straight month of gains.

The rally has also spread to platinum prices, which saw their largest weekly advance in eight years last week by gaining nearly 9%. Shares of companies that mine precious metals have also benefited as they offer individual investors easier exposure compared to trading metals futures contracts.


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