Precious Metals Enjoy Resurgence in Negative-Yield World


♦ Precious Metals – Stock Market News Today ♦ … – Gold purchases by everyone from central banks to retail buyers have boosted the metal to its highest level in six years, with a coterie of famous investors now touting its role as a haven from market turmoil. Silver and platinum have outpaced all other major asset classes so far in the third quarter, while palladium is up about 30% this year.


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The sudden interest in precious metals follows years of sideways trading as investors bet that steady growth would allow the world’s central banks to raise interest rates and end an era of miserly debt yields.

Instead, a deepening trade war between the U.S. and China has weighed on the outlook of nearly every major economy, adding pressure on many central banks to further cut rates—even those that already stand below zero.

Precious metals fell sharply Thursday as stocks and other risky investments rallied on hopes that coming trade talks will relieve some pressure on the world economy. Gold, silver and platinum each dipped 2% or more, trimming some of their sizable quarter-to-date gains.

Metall

While these nonyield-bearing assets struggle to compete with bonds when the outlook for the world economy is stable, their appeal has risen as negative rates have proliferated in Europe and Japan. It also has boosted interest in stocks that are expected to pay high dividends even when growth slows, such as shares of utilities and makers of consumer products.

“There is so much flight to safety right now and metals is where a lot of that money is going,” said Bob Haberkorn, senior commodities broker with RJO Futures in Chicago.

“Traders that had been out of the metals market are coming back…and there’s been a lot of buying from new accounts,” Mr. Haberkorn said. “It’s been great, great for business.”

Another factor boosting them this summer: falling yields and growth fears have dragged a long list of currencies, from the euro and British pound to the Chinese yuan, to their lowest levels in years. Unlike currencies, gold and other precious metals aren’t under the sway of any global central bank, further heightening their appeal.

Additionally, while stocks remain near records, a recent burst of market volatility has unsettled many investors. So has a steady world-wide decline in bond yields that many believe is a harbinger of weaker growth.

Although they rebounded Thursday, yields on the U.S. 10-year Treasury note dropped near a record low earlier in the week as disappointing manufacturing data and trade tensions pushed investors into government bonds and other safe assets. Yields fall as bond prices rise.

In Europe and Japan, some bond yields have been negative for years, and investors expect they will fall further as the European Central Bank and Bank of Japan unleash more monetary stimulus. More than $15 trillion in government debt around the world now has a negative yield, meaning essentially that savers holding these bonds are paying the government to store their money.

“Gold yields zero, but zero is still much better than negative,” said Bart Melek, head of commodity strategy at TD Securities.

Hedge funds and other speculative investors are wagering on further gains. They have pushed net bullish bets on gold to their highest level since 2006, as far back as Commodity Futures Trading Commission figures go. They also have lifted bullish wagers on platinum and silver, which both are on track for their best quarter in several years, according to Dow Jones Market Data.


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Their advance comes after years of tepid investor interest, particularly in platinum, which is used as a component in auto exhaust filters for diesel engines. Platinum prices had previously tumbled as environmental concerns cut demand for diesel vehicles across the world.

But the precious-metals rally spread to platinum in July, and prices logged their biggest weekly gain in eight years last week, advancing nearly 9%.

The gains have rippled to shares of companies that mine the metals, in part because mining stocks offer individual investors easier exposure to the sector than trading metals futures contracts.

The NYSE Arca Gold Miners Index is up about 40% this year, and shares of some smaller precious-metals producers have risen even more than that. Royal Gold Inc. is up 58% for the year, while First Majestic Silver Corp. has climbed 70%.

After an extended stretch of rangebound trading, the combination of falling rates and sluggish economic activity set up the sector’s rally this quarter, said Rhona O’Connell, head of market analysis for Europe, the Middle East, Africa and Asia at INTL FCStone.


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“It was looking a bit like a pressure cooker,” she said. “It’s a sharp move that becomes self-fulfilling because you get the momentum traders involved.”

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