Gold futures surged on Sunday night and Monday, reaching $1,943 an ounce, a record high, as trepidations over the Covid-19 pandemic and U.S.-China tensions weighed on investor sentiment, and investors sought out potentially more lucrative safe havens amid historically low Treasury yields. Gold ETFs jumped on the news.
With tensions with China and a thirst for more yield, the spot gold price exploded past the previous record high price set in September 2011 to trade steadily above $1930 an ounce Monday, carrying the SPDR Gold Trust (GLD) 1.90% higher amid the pop.
In a tit for tat standoff, tensions have been exacerbating between Washington and Beijing. China said on Friday that it ordered the United States to close its consulate in Chengdu, following the U.S. shuttering of the Chinese consulate in Houston.
As gold prices breached new all-time highs, confidence in the lustrous metal suggests that investors are looking to escape from the U.S. dollar, said Ken Hoffman, senior expert at McKinsey.
“The world is trying to get away from the dollar. You’ve seen a number of Chinese sources talk about the ‘de-dollarization’ and as the world tries to look for another currency besides the U.S. dollar, gold makes a lot of sense,” Hoffman told Kitco News.
Last week, Secretary of State Mike Pompeo criticized China in a speech, claiming that the United States will no longer tolerate Beijing’s attempts to dominate global order.
But historically low yields could be catalyzing gold’s rapid ascension. In a note that was disseminated before gold reached fresh highs, Commonwealth Bank of Australia’s Vivek Dhar said the drop in U.S. 10-year Treasury yields has been the “most important driver,” for gold.
“When long-term U.S. real yields increase, gold is less attractive, relative to interest-bearing securities, since gold has no income earning ability,” said Dhar, who is a mining and energy commodities analyst at the firm. “The fall in U.S. 10-year real yields is primarily being driven by an increase in U.S. 10-year inflation expectations.”
Johan Jooste of The Global CIO Office also told CNBC’s “Street Signs Asia” on Monday that the “opportunity cost of holding gold is virtually zero” with Treasury yields at their current low levels.
Although the rapid spike in the precious metal could certainly warrant a pullback, ETF investors can get gold exposure via miners ETFs which are rallying strongly Monday using the following funds:
- VanEck Vectors Gold Miners (NYSEArca: GDX): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index®. The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.
- Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG): seeks daily investment results, before fees and expenses, of 200% of the daily performance of the MVIS Global Junior Gold Miners Index. The index includes companies from markets that are freely investable to foreign investors, including “emerging markets,” as that term is defined by the index provider.
- Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) : seeks daily investment results, before fees and expenses, of 200% of the daily performance of the NYSE Arca Gold Miners Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and, in mining for silver.
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