Kal Kotecha PhD
1
All posts from Kal Kotecha PhD
Kal Kotecha PhD in Junior Gold Report,

Negative Real Rates Fuel Gold Jump

US Global Investors.

The yellow metal has surged 28% year-to-date, its best first half of the year since 1974. And now there are signs that the rally is just getting started.

That’s the assessment of analysts from UBS and Credit Suisse, who see gold entering a new bull run. According to UBS analyst Joni Teves, gold could climb to $1400 an ounce in the short term on macroeconomic uncertainty, dovish monetary policy and lower yields.

“These factors,” Teves writes, “justify strategic gold allocations across different types of investors” and should encourage hesitant investors to participate.

Already-low bond yields around the globe have fallen even further in Brexit’s wake, many of them hitting fresh all-time lows, including yields in the US, UK, Germany, France, Australia, Japan and elsewhere. For the first time ever, Switzerland’s entire stock of bond yields has fallen below zero, with the 50-year yield plunging to negative 0.03% on July 5.

Canada’s 30-year bond yield also plunged to a record low, as did yields on the 10-year and 30-year Treasuries. So about $10 trillion worth of global government debt now carry historically low or negative yields, which are “creating negative growth” in the world economy, according to billionaire “bond king” Bill Gross.

Anemic yields are also contributing to gold’s attractiveness right now. Since Britain’s June 23 referendum, the precious metal has rallied more than 8%, helping it achieve its best first half of the year in more than a generation.

Joining UBS in forecasting further gains is Credit Suisse, which sees gold reaching $1500 by as early as the start of next year. As Kitco reports, Credit Suisse analyst Michael Slifirski writes that “the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the time frame for a negative real rate environment in the US and potentially abroad.”

This is precisely what I told BNN’s Paul Bagnell last week, using Canada as an example. The Canadian 10-year yield is sitting just below 1%, while inflation in May came in at 1.5%. When we subtract the latter from the former, we get a real rate of negative 0.5% – meaning inflation is eating your lunch. Like negative bond yields, negative real rates have in the past accelerated momentum in gold’s Fear Trade.

We need only look at the end of the last upcycle in gold to see this to be the case. When gold hit its all-time high of $1900 in August 2011, real interest rates were around -3%. A five-year Treasury bond yielded only 0.9%, and that’s before inflation took 3.8%. But as real rates rose, gold prices fell. Now the reverse is happening.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada’s capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

Full article: Negative Real Rates Fuel Gold Jump

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News, RSS links are shown there.

Disclaimer© 2010 Junior Gold Report

Junior Gold Report’ Newsletter: Junior Gold Report’s Newsletter is published as a copyright publication of Junior Gold Report (JGR). No Guarantee as to Content:Although JGR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein. Any statements expressed are subject to change without notice. JGR, its associates, authors, and affiliates are not responsible for errors or omissions. Consideration for Services: JGR, it’s editor, affiliates, associates, partners, family members, or contractors may have an interest or position in featured, written-up companies, as well as sponsored companies which compensate JGR. JGR has been paid by the company written up. Thus, multiple conflicts of interests exist. Therefore, information provided herewithin should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. No Offer to Sell Securities: JGR is not a registered investment advisor. JGR is intended for informational, educational and research purposes only. It is not to be considered as investment advice. Subscribers are encouraged to conduct their own research and due diligence, and consult with their own independent financial and tax advisors with respect to any investment opportunity. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the companies mentioned herein.Links: JGR may contain links to related websites for stock quotes, charts, etc. JGR is not responsible for the content of or the privacy practices of these sites. Release of Liability: By reading JGR, you agree to hold Junior Gold Report its associates, sponsors, affiliates, and partners harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries (financial or otherwise) that may be incurred.

Forward Looking Statements
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward looking statements are usually identified by our use of certain terminology, including “will”, “believes”, “may”, “expects”, “should”, “seeks”, “anticipates”, “has potential to”, or “intends’ or by discussions of strategy, forward looking numbers or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts, and include but are not limited to, estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to the effectiveness of the Company’s business model; future operations, products and services; the impact of regulatory initiatives on the Company’s operations; the size of and opportunities related to the market for the Company’s products; general industry and macroeconomic growth rates; expectations related to possible joint and/or strategic ventures and statements regarding future performance. Junior Gold Report does not take responsibility for accuracy of forward looking statements and advises the reader to perform own due diligence on forward looking numbers or statements.