Gold is traditionally thought of as a haven asset — a safe port in a storm. But that hasn’t stopped it from rising to a near nine-year high, and within striking distance of its record, even as equities and other assets traditionally viewed as risky remain buoyant as they rebound from the pandemic-inspired selloff suffered earlier this year.
Chalk it up, in part, to opportunity costs. Efforts by global central banks to push down interest rates, which have fallen into negative territory in real, or inflation-adjusted terms, in the U.S. and are outright negative in many parts of the world, mean that investors who hold gold aren’t missing out on the yield they would earn from holding bonds in more usual circumstances.
“As real yields turn negative, opportunity costs for holding non-yielding assets essentially vanish, particularly when viewed through the historical lens of fiat currencies and their purchasing power,” wrote Jeff deGraaf, chairman of Renaissance Macro Research, in a Thursday note.
“This provides a continued tailwind for gold,” he said referring to the chart below, which shows the gold price inverted versus the real Treasury yield curve:
fell $16.80, or 0.9%, to settle at $1,803.80 an ounce, a day after the most-active contract rose 0.6% to settle at $1,820.60, the highest since Sept. 14, 2011, according to FactSet data. The weaker tone was accompanied by losses for stocks, with the S&P 500
Gold remains up 0.8% for the week and more than 18% in the year to date, based on the most actively traded contract, according to FactSet.
Here’s another look from Georgette Boele, precious-metal strategist at ABN Amro, in a Thursday note. As the chart on the left shows, gold is moving increasingly in lockstep with stocks, as measured by the Dow Jones Industrial Average
, behaving more as a “risk-on” asset — a move aided by the fall in real yields, as reflected by the right-hand chart:
“Firstly, central bank policy is a strong driver behind higher gold prices. Not only are official rates close to zero in a large number of countries, they will unlikely go up in our forecast horizon,” Boele wrote.