Don't Bet Against Negative Bond Yields, Bet On Gold - Andrew Hecht
(Kitco News) - The gold market is holding its ground and one commodity analysts said that he expects investment demand to remain strong as he is not betting against negative bond yields in the U.S.
Andrew Hecht, creator of the Hecht commodity report, said in a recent commentary published on Seaking Alpha that he continues to like gold as it looks like global bond yields could fall to “unimaginable levels” due to aggressive monetary easing.
“Gold is a market that is telling us that the value of government-issued money is declining. The pace of deterioration has picked up,” he said. “In more than a few currencies, gold is at an all-time high. In dollar, euro, Swiss franc, and other currencies, it appears to be heading in that direction.”
His comments come as gold prices continue to hold critical initial support above $1,500 an ounce. December gold futures last traded at $1,513.80 an ounce, up 0.18% on the day.
Hecht noted that before 2008 financial crisis the idea of a negative bond yield -- where investors pay to hold government debt -- was unthinkable; however, as growth starts to slow, there is now a race to the bottom among major global central banks.
Although the U.S. still has room to cut interest rates, Hecht said its only a matter of time before America sees negative interest rates as Japan and European markets lead the way lower.
“If the central bank policies in Europe, Japan, and other parts of the world have taught the Fed anything, it is that there could be no bottom for rates and no limit to the amount of quantitative easing to stem recessionary pressures,” he said.
Although some economists still see a low probability for a major global recession, Hecht said that the ongoing trade war, which has now also evolved into a currency war remains the biggest threat to global growth. This could be the spark that ignites the next financial crisis, he said.
“Trade and currency wars around the globe and the uncertainty over Brexit could trigger the next significant economic crisis with consequences similar to 2008,” he said. “The world's central banks will address a meltdown with even more liquidity, and negative rates will become a global norm rather than an exception.”
In the current environment, Hecht said that gold remains one of the only viable safe-haven assets.
“Falling rates around the globe are rocket fuel for the gold market. The current rally could be just the beginning of a bull market that takes the price of the yellow metal a lot higher than most market participants think possible,” he said.