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Gold Prices Trade Higher as Bond Rally Reaches Epic Proportions

Investing.com - Gold prices rose on Wednesday as a rally in bonds reached record proportions, driving yields on many yields to new all-time lows.

Gold futures for December delivery on the Comex division of the New York Mercantile Exchange, gained $6.25, or 0.4%, to $1,520.35 a troy ounce by 7:11 AM ET (11:11 GMT).

The yield on the U.S. 10-year Treasury note fell below that of the 2-year, inverting the curve for the first time since 2007.

“The last three times this happened, U.S. recessions soon followed,” Investing.com global markets analyst Jesse Cohen said.

Increasing worries over a potential global recession have been a strong bullish factor for safe-haven gold, which has risen more than 5% so far in August.

Data released earlier showed that Chinese industrial output growth hit its lowest level in 17 years, while the German economy contracted in the second quarter. Analysts signaled both data points as signs of the negative impact from trade conflicts, especially the U.S.-China dispute.

Despite news a day earlier that U.S. President Donald Trump had decided to delay the implementation of tariffs on some Chinese goods from Sept. 1 to Dec. 15, National Australia Bank economist John Sharma said that “the trade dispute is still not resolved."

He added that the risk of further civil unrest in Hong Kong, trends in global growth and at least one more interest rate cut from the Federal Reserve are all factors that are supportive for gold.

New records in plunging yields also increased the appetite for non-yielding bullion. The yield on the U.S. 30-year Treasury bond hit an all-time low, while the yield on the 10-year German Bund and the French 10-year OAT marked a fresh record lows in negative territory.

Lower yields are beneficial to gold as they reduce the opportunity cost of holding the non-yielding precious metal. For over $1 trillion in publicly-traded debt now yielding below zero, holding gold now offers a widening nominal premium.

“Gold will be hoarded by central banks as a world of negative yields force their hands-on asset allocation away from negative yielding government financing to zero cost gold tangible asset,” Steen Jakobsen, chief economist and investment officer at Saxo Bank, said via Twitter.

“I would not be surprised to see $1,600 and even $1,800 in a big end of year rally,” Jakobsen said.

In other metals trading, silver futures gained 0.8% to $17.108 a troy ounce by 7:12 AM ET (11:12 GMT).

Palladium futures dropped 1.0% to $1,436.60 an ounce, while sister metal platinum lost 0.5% to $855.45.

In base metals, copper traded down 1.4% to $2.594 a pound.

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