Gold continues to showcase its status of being a haven in times of uncertainty and turmoil trading near six-year highs as China’s coronavirus has now been declared a global health emergency by WHO. The U.S told its citizens not to travel to China, and it is expected many countries will follow and issue travel bans on China in the coming days. The virus continues to slowly spread to countries around the world, with the death toll now being 213 with scientists predicting more than 75,000 people are potentially infected in Wuhan.
Gold is up more than 4% so far in 2020. As on top of public health risks, geopolitical tensions remain a significant concern on a global basis. Today, the U.S 30-year yield fell below 2% for the first time since October with the addition of global negative-yielding debt ticking back up as it now stands at $13.555 trillion.
Global negative-yielding debt will continue to serve as a major driver for the price of gold this year and the years to come. Some of the best environments that have pushed gold to all-time highs are when we have negative (and declining) real interest rates as investors begin to seek yield. Negative interest rates to be clear is a very damaging policy as it purely punishes savers and leads to further capital consumption. With debt levels already being at record levels on a public and private basis, negative interest rates are the cherry on top, indicating a major debt bubble.
As negative interest rates begin to reach more economies, expect institutional investors to rotate their money out of high growth and back into gold and precious metal mining companies.
When looking at the ARCA gold bug index and the gold price, you can see there is a major discrepancy between mining companies and this recent run. We expect this to correct as we begin to see more of a rotation out of the “risk-on” to “risk-off” as mining companies release Q1, Q2 financials as their bottom line should be bolstered with the elevated gold price.
We will be featuring some exciting gold producers in the coming weeks that are going to benefit from this better environment due to its leverage, cash management but also its growth potential.