Gold price now at 2021 low, will it fall further? Rising yields is main threat - Lyn Alden
(Kitco News) - Gold is not purely an inflation hedge, but more of a hedge against real interest rates, and rising bond yields that have outpaced the growth of inflation expectations has been weighing down on the precious metal, said Lyn Alden, founder of Lyn Alden Investment Research.
“What gold really does is it protects you from an environment where inflation is much higher than the bond yields, and that’s what we’ve seen in 2020 is that gold over the past couple of years had a pretty big appreciation because it was protecting against that. Now, since about late summer 2020, negative real yields have been roughly flat,” Alden said.
Yields, especially in the long end of the curve, have been rising on the back of higher inflation expectations. However, real yields still hover around negative 1%.
“If this were to continue, that actually presents, in addition to not being good for bond holders…because yields going up means the prices go down, it also potentially puts some pressure on the mega cap growth stocks or even some of the smaller growth stocks because a lot of them are based on the premise of very, very low discount rates to justify their high valuations,” she said.
On economic growth, Alden said that higher government expenditures will continue to be a driving force for the gross domestic product (GDP), along with some recovery in consumer spending.
Investing in assets that do well in a reflationary environment should be the play for investors, she said.