Gold as a play on US yields ability to stay positive

The gold rally has gotten a lot of attention lately with many analysts citing a flight to safety, fears of a recession, etc. These are all factors that go into the decision to purchase gold but the rally as of late have more to do with lower yields than anything else. With the amount of money in debt that is currently yielding a negative rate the opportunity cost that keeps some from purchasing gold has gone positive. But in Europe negative rates were not something that occurred in the past month, likewise Japan is not imposing negative rates on the majority of their deposits either. The biggest factor that has sparked interest in gold is the change in perception that the Fed will keep bucking the trend and increasing rates. Talk of negative rates as a policy option and concerns surrounding the global economy has flattened the yield curve in the US and put the dollar into question in terms of its recent strength as well as the yields that can be derived from dollar debt. This is why we see such a strong inverse correlation between the long end of the treasury curve (yield) and gold. With inflation expectations looking dim and rates moving more negative around the world, holding an asset that may not have a return, but importantly doesn’t have a fee, looks like a safe bet at the time.

Next week the Fed minutes will be released which could shine some light on the conversations between governors about the relative strength of the US jobs markets and how they can hold up to the concerns about the global economy.  Gold will remain a US Yield play so long as other safe haven bonds are charging for the right to hold them.