Gold has topped $1260, and Silver $17 as the post-payrolls buying-spree accelerates, dramatically outperforming stocks and bonds…
Sending PMs soaring above key levels…
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Precious metals are surging as Fed credibility plunges.
Goldman explains one reason for the renewed interest in precious metals as they note that gold can provide a hedge in currencies with anchored real yields…
The correlation of the S&P 500 with gold has been close to zero on average since the 1990s and outside of the late 1980s and1990s drawdowns and gold provided a hedge in large equity drawdowns. While the current real gold price appear elevated, compared to the S&P 500 it appears low (Exhibit 23).
Gold is often perceived as a ‘safe haven’ that protects value in several adverse scenarios: inflation, deflation and financial market stress.
The gold rally into and post the GFC has been alongside a steady decline of real yields (Exhibit 24) and going forward higher US real yields might weigh on gold prices in US$. However, gold should be able to provide a hedge in currencies where real yields are anchored and there is less reflation momentum such as Europe and Japan.
What might also support gold in those countries is that gold can be a store of value in a time of more negative rates and with comparably low storage costs.
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