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Gold Prices: Investors Don’t Fear 3% Bond Yields

Kitco News

(Kitco News) - The gold market does not have to fear rising bond yields, as inflation expectations are keeping real interest rates muted, according to one investment firm.

In a report, Monday, Maxwell Gold, director of investment strategy at ETF Securities said that gold prices still have room to push higher even as the yield on 10-year notes rises to 3%. The comments come as 10-year bond yields have increased to 2.86%, their highest level in 4-years.

Despite rising yields, the gold market is starting the week on a positive note, as the price bounces further off last week’s five-week low. April gold futures last traded at $1,327 an ounce, up 0.86% on the day.

Traditionally, higher bond yields are negative for gold because they raise the yellow metal’s opportunity costs.

“The true driver for gold is real interest rates, which is why even though current US yields approach 3%, gold investors should not panic,” said Gold. “Inflationary pressures and inflation expectations continue to rise commensurately keeping real interest rates low and range bound.”

Not only are investors turning to gold as a hedge against inflation, but Gold said that the yellow metal’s safe-haven appeal should also not be ignored.

“Additionally should rising yields spark further volatility in equity markets, gold may benefit as investors flock to defensive assets and risk hedges such as the yellow metal given its historically negative relationship with persistent equity market drawdowns,” he said.

Along with low real interest rates, ETF Securities noted that a weaker U.S. dollar has helped drive gold prices in the first month of the year. The firm noted that gold prices 3.32% in January while the U.S. dollar fell 3.25% last month.

However, a resurgence in the U.S. dollar has helped cap gold’s recent gains as tested support above the critical psychological level at $1,300 an ounce.

The investment firm also sees the potential for silver prices, reiterating its target of $19 an ounce in the first half of the year.

The comments come as the silver market continues to struggle to find investor interest. Silver prices have managed to bounce off a nearly-two month lows but remain well below the psychological level at $17 an ounce. March silver futures last traded at $16.56, up more than 2% on the day.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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