Yields Sinking Everywhere, But Gold Just Hit New All-Time Highs…

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

“It is no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative,” Joachim Fels, PIMCO’s global economic advisor, warned investors this week. “Whenever the world economy next goes into hibernation, U.S. Treasuries—which many investors view as the ultimate ‘safe haven’ apart from gold—may be no exception to the negative yield phenomenon.”

Fels seems not to be the only investor with this idea, judging by the increased demand for gold.

The price of the yellow metal headed for its best week in nearly two months as the total value of negative-yielding debt around the world touched a new record of $15 trillion. With the nominal yield on the 10-year Treasury having fallen below 2 percent—and just shy of 0 percent on an inflation-adjusted basis—gold surged above $1,500 an ounce in U.S. dollars (USD) for the first time since September 2013.

It also hit historic all-time highs when priced in a number of other world currencies, including the British pound, Russian ruble and Indian rupee. This week, the central bank of India, along with those in New Zealand and Thailand, surprised markets by cutting rates more than expected, adding to fears that an economic slowdown was imminent.

On Wednesday, gold’s performance for 2019 caught up with and surpassed that of the stock market.

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Analysts at Goldman Sachs now say that $1,500 is only the beginning, and that we could see $1,600-an-ounce gold within the next six months.

“If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” Goldman analyst Sabine Schels said in a note to investors this week. “Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term.”

Indeed, gold ETFs attracted $2.6 billion of net global inflows in July alone, raising their collective holdings to 2,600 tonnes—a level unseen since March 2013, according to the World Gold Council (WGC).

A $1.2 Trillion Hit to the World Economy

For further insight on global trade, Goldman no longer believes a resolution to the U.S.-China trade war will occur before the 2020 presidential election. Today, in fact, President Donald Trump told reporters that “we are not ready to make a deal” with China, “but we’ll see what happens.”

Should the trade war continue to escalate, it could cost the world economy “dearly,” according to Bloomberg. New modeling by Bloomberg analysts shows that global GDP would be 0.6 percent lower by 2021, amounting to a whopping $1.2 trillion hit, if markets slumped as a result of a full blown trade war.

Currency Wars Are Pushing Up the Price of Gold

Again, it’s not just USD-priced gold that’s done well in recent days. The precious metal blew past new all-time highs in a number of currencies on top of those I already mentioned. They also included currencies in major gold-producing economies such as Australia, Canada and South Africa. Australia’s dollar traded at its lowest level against the USD since the financial crisis a decade ago.

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One of our favorite ways to play this appreciation is with Russia gold stocks, particularly Moscow-based Polyus, which was up nearly 55 percent in the 12 months through August 8. Its peers, Polymetal (up 51 percent) and Highland Gold (75 percent), have also been winners in a strong gold-price environment.

“Polyus is undoubtedly a growth company,” according to equity research firm Wood & Company. Analysts there note Polyus’ lower-than-average production cost of only $348 an ounce last year and attractive valuation of 6.8 times price-to-earnings (P/E). “It offers a decent yield more long-term growth than any other stock in Russian metals and mining, and we believe the sanction risks are small,” Wood analysts write. The producer’s dividend yield is expected to average between 5 percent and 6 percent this year, well above its peers.

Beijing Wants Even More Gold in Its Reserves

In other currency war news, China added to its official gold holdings for the eighth straight month in July. Its central bank increased holdings as much as 10 tons, after raising it 84 tons in June. Total holdings now stand at 62.26 million ounces, as the world’s second largest economy expands its efforts to diversify away from the USD.

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As I explained earlier this week, China allowed its currency, the renminbi, to weaken past 7.0 versus the USD, a level not seen since 2008. This was just the latest development in the country’s trade spat with the U.S. that’s nearing its 18th month.

Doctor Copper Hits a Two-Year Low on Growth Concerns

Fears of slower growth may be beneficial for the price of gold right now, but they’re taking a toll on copper, often seen as a barometer for the global economy. The red metal is widely used in, well, anything that needs to conduct an electrical charge, and when a slowdown in industrial demand is expected, prices struggle.

Take a look below. Copper has more or less followed the global manufacturing purchasing manager’s index (PMI) down over the past year and a half. Factories across the globe contracted for the third straight month in July.

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As the Wall Street Journal puts it, the slide “threatens to limit investment in new mines, a trend that industry analysts and executives say could lead in coming years to sizable shortages of the material critical to manufacturing and renewable-energy projects.”

The price of copper slid as low as $2.53 per pound on Monday, a 52-week low and nearly 25 percent down from its recent high of $3.30 from last June.

An economic gauge of heavy copper-using manufacturers indicated contraction in July. The Global Copper Users PMI fell from 50.0 in June to 48.6 last month, the weakest result in five months, according to IHS Markit.

“Companies noted that raised trade tensions played a part in reducing production, as new export orders fell at a sharper rate,” said IHS Markit economist David Owen, who added that weakness in the European auto sector also played a role in declining copper demand.

Want to learn more about the recent moves in metals and oil? Listen to my interview with Bloomberg’s Lisa Abramowicz and Paul Sweeney by clicking here!  

Gold Market

This week spot gold closed at $1,492.30, up $51.70 per ounce, or 3.59 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 6.23 percent. The S&P/TSX Venture Index came in off 2.92 percent. The U.S. Trade-Weighted Dollar fell 0.53 percent.

Date Event Survey Actual Prior
Aug-8 Initial Jobless Claims 215k 209k 217k
Aug-9 PPI Final Demand YoY 1.7% 1.7% 1.7%
Aug-13 Germany CPI YoY 1.7% 1.7%
Aug-13 Germany ZEW Survey Current Situation -5.9 -1.1
Aug-13 Germany ZEW Survey Expectations -28.0 -24.5
Aug-13 CPY YoY 1.7% 1.6%
Aug-13 China Retails Sales YoY 8.6% 9.8%
Aug-15 Initial Jobless Claims 212k 209k
Aug-16 Housing Starts 1259k 1253k


  • The best performing metal this week was silver, up 4.78 percent. Silver had been somewhat detached from gold’s price changes, but now with recession odds rising, silver is catching its bid. Gold traders and analysts were bullish on their outlook for the yellow metal this week as it set a new six-year high above $1,500 per ounce. The metal saw a second straight weekly gain, fueled by uncertainty surrounding global trade tensions and monetary policy. Investors have taken notice of the rally with ETFs backed by gold growing holdings for nine straight days. Bloomberg reports that total gold held by ETFs rose 8.5 percent this year to 77.1 million ounces, the highest level in at least 12 months. SPDR Gold Shares, or the GLD, saw five straight days of inflows this week totaling a whopping $1 billion.

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  • Gold rose as much as 1.6 percent on Wednesday to above $1,500 per ounce, the highest since 2013. Wayne Gordon, executive director for commodities and foreign exchange at UBS Group, says “gold is serving its traditional role as a safe-haven asset” as the trade war tensions continue to heat up.
  • Speaking of trade war, China continues to add more gold to its reserves. China’s central bank bought more gold in July, marking eight straight months of buying and a new total of 62.26 million ounces in holdings. Why might be China buying gold? Perhaps because it’s output for the first half of the year fell 5 percent year-over-year, to 180.68 tons, according to the China Gold Association. Russia also bought more gold in July. Its official reserve assets sat at $519.8 billion in July, up from $518.4 billion a month earlier.


  • The worst performing metal this week was palladium, but still closed up 1.14 percent as traders reduced their net-long futures position to a seven-week low. Turkey’s central bank gold holdings fell $248 million from the previous week—a sharp reversal after increasing by $164 million the week before that. Bloomberg reports that India’s gold imports in July fell to the lowest monthly inflow in more than three years as demand is hampered by higher prices in the domestic market. Remember: India is the world’s second largest consumer of the metal.
  • In the week to August 7, equity funds worldwide saw outflows of $25 billion, which is the most redemptions since the start of the year, according to Bank of America strategists citing EPFR Global data. Fifteen billion dollars of that was in U.S. equity funds. On the upside, gold funds saw inflows of $2.3 billion in that same time period—the fourth biggest weekly inflow ever.
  • Iamgold Corp. cut its attributable gold production forecast for the full year and reported second quarter production of 198,000 ounces, down 7.5 percent year-over-year. Iamgold’s share price tumbled over 14 percent on the disappointing news.


  • Taking another look at the gold-to-silver ratio, let’s remember what happened in summer 2011. There were major fears of a recession, big concerns about Europe and a surge in the Swiss franc, which led to both gold and silver hitting post-crisis peaks. Since then, the ratio has been falling. Bloomberg’s Joe Weisenthal thinks the ratio could have room to run now if things continue as they are. Could silver see more upside than gold? Bloomberg’s Eddie van der Walt writes that silver has outperformed gold over the last month and appears to be reestablishing its positive beta, which could mean if gold rallies, silver will rise faster.
  • What’s worrying some investors? China buying more gold and the falling copper-to-gold ratio. China stocking up on bullion, often seen as a safe haven asset, and diversifying away from the U.S. dollar could mean that the country is gearing up for a prolonged trade conflict and currency war. The copper-to-gold ratio is often used as a sentiment barometer for the global economy, and the ratio has now fallen back to levels last seen in November 2016, right before President Trump won the election. Both of these factors boost gold’s demand as a safe haven.
  • Goldman Sachs continues to be a gold bull. Analysts predict that gold will climb even further to $1,600 per ounce by the end of this year as investors continue to seek haven assets, reports Bloomberg. Last week Bank of America Merrill Lynch analyst Michael Widmer said that gold could even climb toward $2,000 in the next two years due to dovish central banks and the growing amount of negative-yielding government bonds.


  • Bloomberg’s Anchalee Worrachate writes that President Trump’s trade war with China is also turning into a currency war and that it would be hard for him to win both those battles. If the yuan weakens further, it might prompt the U.S. to intervene, which it hasn’t done since 2000. UBS strategists wrote in a note this week that “the more likely outcome of the explicit currency war would be further extension of uncertainty, which ironically could prove to be dollar-positive if risk assets fear weaker growth and volatility pushes higher.”
  • AngloGold Ashanti’s CEO says that it’s been difficult to sell assets in the current market. CEO Kelvin Dushnisky says “it’s a more challenging market in terms of divestment, as opposed to years ago, because of speculation on potential assets coming into the market.” On Monday, around 5,000 protesters gathered outside a planned mine site owned by Dogu Biga Mining, the Turkish subsidiary of Alamos Gold Inc., to oppose the gold for environmental reasons.
  • Concerns about the New York Fed keep growing, according to a piece by Bloomberg out this week. Just months ago two longtime officials departed suddenly, which shook staff, sank morale and then drew attention to leadership of the Fed under John Williams. Concerns are growing of his background, which lacks experience in the finance industry. The New York Fed is important as it serves as the central bank’s eyes and ears on Wall Street and is the only regional bank with a permanent vote on rate decisions.

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 0.75 percent. The S&P 500 Stock Index fell 0.46 percent, while the Nasdaq Composite fell 0.56 percent. The Russell 2000 small capitalization index lost 1.34 percent this week.
  • The Hang Seng Composite lost 3.54 percent this week; while Taiwan was down 0.52 percent and the KOSPI fell 3.02 percent.
  • The 10-year Treasury bond yield fell 1 basis point to 1.737 percent.


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