As Bond Yields Plunge, More Mainstream Investors Jump on Gold Bandwagon

Over the last few months, a number of big-name, mainstream investors have said buy gold. Stanley Druckenmiller publicly advised investors to sell US stocks and buy gold. Legendary hedge fund manager Paul Singer said “it makes sense to own gold.”

With Brexit now a reality, and bond yields slipping lower and lower, the gold bulls continue to charge. This week, Joe Foster, gold strategist at VanEck, jumped on the bandwagon, saying he expects $1,400 gold this year, and he doesn’t believe it will end there:

Many are seeing the looming potential for another financial crisis and making a strategic allocation to bullion as a hedge against systemic risk.”

TD Securities also predicts $1,400 gold and said $1,500 is possible if the Federal Reserve further cools market expectations for an interest rate hike:

Given that there are likely to be significant flows into gold and other precious metals seeking protection from the current turmoil, the record amount of net-long exposure should not impede the yellow metal from trending toward $1,400 per ounce. If we see the Fed downgrade its rate forecast in the not-too-distant future, a move toward $1,500 per ounce is also very possible, particularly if the negative yield narrative grows even louder.”

Meanwhile, on Tuesday the yield on a 10-year US Treasury hit the lowest level since 1790, falling below 1.4% for the first time on record.

Many bonds around the world are yielding less than zero. MarketWatch recently reported analysis by Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, showing the utter ineffectiveness of years of central bank interest rate cuts and quantitative easing. He found that central banks around the world have cut interest rates a combined 659 times since the Lehman Brothers bankruptcy:

He estimated that $12.9 trillion worth of bonds were yielding less than zero, equivalent to 29% of total bonds outstanding. The three-year Swiss government debt currently holds the title of yielding the least at minus 1.1%. Treasuries so far have escaped the fate of their European and Japanese peers but US yields remain under pressure as the Federal Reserve is expected to refrain from hiking interest rates immediately because of global economic and presidential election uncertainties.”

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Central banks have already made moves toward further easing and rate cuts in the wake of Brexit. It seems almost a certainty the negative yield narrative will get louder.

VanEck’s gold strategist echoed these thoughts in a Kitco News report:

Foster sees several factors in the global economy that will continue to support gold prices in the long term, including continued loosed monetary policy and low bond yields. Quoting the latest report from ratings agency Fitch, he noted that $11 trillion in sovereign debt is offering negative yields. ‘Bonds no longer provide safe and steady returns. Investors may seek alternatives to help preserve their wealth,’ he said. Foster also said that weak global growth and volatile currency markets will make gold an attractive investment.”

Peter Schiff has maintained the Federal Reserve will soon cut rates and launch a new round of quantitative easing. He reiterated that point in an interview with Alex Jones on InfoWars:

They have nothing left. I think all they’re going to do now is try to change their rhetoric and try to talk about not raising rates, then they’ll talking about cutting rates, then they’ll eventually cut them, and then they’ll take them negative. But I think also somewhere along the way they’re going to restart their QE campaign. I think QE4 is going to be bigger than one, two, and three combined, and it’s going to be even more destructive to the standard of living of average Americans.”

Peter has been pounding this narrative for months, and now the mainstream is starting to see the writing on the wall as well. Central banks aren’t going to suddenly change their ways. That bodes well for gold.

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