… “When the real value of money is being debased, then gold is viewed as the asset to own” …
The price of gold is rising at the quickest pace in years, illustrating the extent to which global investors are anticipating lower interest rates around the world and seeking alternatives to bonds and currencies.
The most-active gold futures contract climbed as much as 1.5% Tuesday before closing slightly higher at $1,418.70 a troy ounce—its highest level since August 2013. Tuesday’s rise brought gains in the past four sessions to 5.2%. As the rally continues, speculators are boosting wagers that prices will continue to climb and billions of dollars are flowing into gold-focused exchange-traded funds. Shares of gold miners are also hitting multiyear highs.
Driving the gains are concerns that global central banks will work to spur growth by lowering interest rates, driving their currencies lower. Those expectations have already led to a global collapse in bond yields—the yield on the benchmark 10-year U.S. Treasury note closed below 2% on Tuesday for the first time since 2016, while those across Europe and in Japan are already negative.
The drop in bond yields has boosted the allure of gold, which has traditionally been a popular destination for investors when yields fall and fears of currency devaluation arise. Similar claims have also been made by proponents of bitcoin, which topped $11,000 on Tuesday, its highest level since early in 2018.
The recent spike in gold prices comes after years of listless trading in bullion, which had generally stayed between $1,100 and $1,350 since June 2013. The momentum in the sector has coincided with a surge in the broader stock market, with major indexes supported by bets that lower interest rates will lower borrowing costs and support corporate profits. Big-name investors such as Paul Tudor Jones and Jeffrey Gundlach have also publicly touted gold’s appeal in recent weeks.
“When the real value of money is being debased, then gold is viewed as the asset to own,” said Hugo Rogers, who oversees $5 billion as chief investment strategist at Deltec International Group. “The environment really plays into the hands of some kind of store of wealth that you cannot debase by printing more.”
Mr. Rogers bought gold for his fund earlier this year, and believes prices are likely to keep climbing.
With Tuesday’s rise, gold logged its best four-day stretch since February 2016. It is now heading for its best month and quarter since that period, when fears about a Chinese economic slump and an oil-price slide roiled markets.
Both the S&P 500 and gold are on track to rise at least 6% in the same month for the first time since October 2011, according to Dow Jones Market Data. “Spikes like this are very rare,” said Chris Mancini, an analyst at Gabelli Gold Fund. “A move like this tells you something has changed.”
At its meeting last week, the Federal Reserve hinted that it would lower interest rates in the coming months if the outlook for the economy doesn’t improve. Gold fell alongside stocks during Tuesday’s session after Fed Chairman Jerome Powell said the central bank shouldn’t overreact to individual data points or sentiment shifts, surprising some analysts who expect multiple interest-rate cuts this year.
Many still expect lower rates to support gold. Hedge funds and other speculative investors pushed net bets on higher gold prices to their highest level since February 2018 during the week ended June 18, Commodity Futures Trading Commission data show. During the most recent week, bullish wagers outnumbered bearish bets by a ratio of 8-to-1, compared with a ratio of 3-to-1 just two weeks prior.
Figures for the week ended Tuesday will be released on Friday. More than $1.5 billion flowed into the SPDR Gold Trust exchange-traded fund last week, FactSet data show, the largest inflow since August 2011.
The investor interest has been a boon for beaten-down shares of gold miners, pushing up the VanEck Vectors Gold Miners ETF up 25% in the past month. Shares of Barrick Gold Corp. and other mining companies are up 30% or more in that period, compared with a 3.2% gain for the S&P 500.
Bill Garrett, a 58-year old who works for a home-healthcare business in Wilmette, Ill., said he has been buying gold coins recently, citing steady physical buying from countries such as China and a belief that currencies around the world will become less valuable. “I think gold is really, really going to take off,” Mr. Garrett said.
Still, many analysts remain wary that a U.S.-China trade deal could lift the outlook for the world economy, spurring growth and sending gold prices sharply lower once again.
And although the Fed has hinted that it could reduce interest rates, many analysts say it is unlikely the central bank will cut them as quickly as the market currently expects.
That gap in projections is one of the largest threats to both stocks and gold, analysts say. “If the Fed doesn’t ease, then I think there’s a good chance they both do come back down,” Mr. Mancini said.