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Bill Gross Warns Of Bond Market Supernova But Gold Traders Already Know

(Kitco News) - Not only is demand for sovereign debt unprecedented, but according to Janus Capital’s Bill Gross yields are at record lows… 500-year lows.

Gross has been attracting media attention for his tweet highlighting $10 trillion of negative yielding sovereign bonds. “This is a supernova that will explode one day,” he commented.

The growing bubble market in the global bond market that Gross is highlighting is a significant factor that has been helping gold prices.

Commodity analysts have noted that negative interest rates lowers gold’s opportunity cost, making it an attractive alternative for investors as a wealth-preserving asset.

In a recent interview with Kitco News, Steven Dunn, executive director for ETF Securities, said despite increased volatility in the near-term, he remains bullish on gold in the long-run due to the low interest rate environment.

“It’s an interesting concept having to pay to lend your money and you are starting to see investors operate differently because of that,” he said. “You are seeing some of these investors turn to gold as an alternative.”  

In a report published Friday, Jonathan Butler, senior market analyst at Mitsubishi said he agreed that gold now has a major advantage in financial markets. “‘Gold has no yield’ – a supposed criticism – actually becomes a huge advantage: gold can preserve wealth when other supposed safe havens like sovereign debt are costing money to hold, or because governments are buying up so much of its own debt there is not actually sufficient availability of bonds,” he said.

Analysts at Commerzbank said that the current vehicle of choice for investors looking for an alternative to bonds is the exchange-traded product market. Since the start of the month, the world’s biggest gold-backed ETF SPDR Gold Shares (NYSEARCA: GLD) has seen its reserves increase by 16.64 tonnes to 887.38 tonnes, the highest level since November 2013. Since the start of the year, GLD has seen inflows of more than 245 tonnes of gold.

Friday, August gold prices settled the week at $1,275.90, its highest price since May 18.

By Neils Christensen of Kitco News;



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