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Gundlach: Negative-Yielding Debt to Push Gold Higher

Gundlach: Negative-Yielding Debt to Push Gold Higher
(Bruno Weltmann/Dreamstime)

By    |   Thursday, 08 August 2019 06:07 PM

Jeffrey Gundlach predicts that gold’s price will only continue to soar along with the surge in negative-yielding bonds.

"At this point, I think the way to think about it is, as long as the volume of negative interest rate bonds outstanding increases, it’s quite likely that gold moves higher in a similar vein," the chief executive of DoubleLine Capital told Yahoo Finance.

Gundlach, who oversees more than $130 billion in assets under management, also blames global central banks for what he calls "increasingly negative interest rate manipulation."

“We are now, I think it's today or yesterday over $15 trillion of global debt is at a negative yield. And the U.S. bond market is being dragged to lower yields by a combination of the race to ever more negative yields in parts of the developed world, and by weak economic data," Gundlach said.

As negative-yielding bonds moved from $10 trillion to $15 trillion in April and May, gold has moved up close to 20%.

"It makes all the sense in the world,” he said. “It's one thing when bonds yield negative a basis point. That's painful. This amount of pain isn’t really excruciating.”

“But now that you’re getting into some more significant negative yields, it’s not surprising that people might want to buy things that have a higher yield than bonds,” he added. “With the yield of 0, gold has a higher yield than bonds. And if you store the gold, you now have a lower cost of carry on gold than you have on 10-year bunds.”

Meanwhile, gold edged down on Thursday as equities markets recovered, the U.S. dollar strengthened and traders locked in profits after bullion surged past $1,500 to a more than six-year high in the previous session, Reuters reported.

Spot gold was down 0.2% at $1,498.45 per ounce as of 01:41 p.m. EDT (1741 GMT). U.S. gold futures settled down 0.7% at $1,509.50 per ounce.

The metal has risen more than 16% so far this year, and about $100 over the past week, in a run propelled by trade tensions between Washington and Beijing, falling bond yields and an increasingly dovish shift in policy by global central banks.

Phillip Streible, senior commodities strategist at RJO Futures, said, the bull run in gold is not over and the market is seeing a small correction.

However, supporting bullion were “expectations that the U.S. Federal Reserve is going to be more aggressive about rate cuts. We have already seen four major central banks cut rates,” RJO Futures’ Streible said.

On the technical front, spot gold may gain further to $1,524, as it has cleared a resistance at $1,497 per ounce, according to Reuters technical analyst Wang Tao.

Gold has been one of the chief beneficiaries of the turmoil in global financial markets as Washington and Beijing spar over trade, Bloomberg reported.

In recent days, the Trump administration threatened fresh tariffs against Chinese goods, the yuan was allowed to sink, and the U.S. branded China a currency manipulator. The stand-off has boosted the odds of more easing from the Federal Reserve. Mounting “growth worries,” prompted Goldman Sachs Group Inc. to predict prices will climb to $1,600 an ounce over the next six months.

“Gold is serving its traditional role as a safe-haven asset,” said Wayne Gordon, executive director for commodities and foreign exchange at UBS Group AG’s wealth management unit. Under the bank’s risk case, marked by a further escalation of the trade fight, prices could go as high as $1,600, he said.

Last month, the Fed reduced borrowing costs for the first time in more than a decade, responding in part to the impact of the trade war. Lower rates boost the appeal of non-interest-bearing bullion.

Material from Bloomberg and Reuters has been used in this report.

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Jeffrey Gundlach predicts that gold’s price will only continue to soar along with the surge in negative-yielding bonds.
gundlach, gold, price, negative, yielding, debt
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2019-07-08
Thursday, 08 August 2019 06:07 PM
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