Demand for bonds and gold was at a fever pitch during the height of the pandemic sell-offs in March, but is one feeding into strength for the other? Rising bond prices mean lower yields and that, in effect, is helping to fuel the recent demand for gold.

Per a recent Bloomberg report, “negative real yields in the U.S. Treasury market are fueling a frenetic rally in gold that’s boosting the precious metal toward a record.”

“Bullion has gained 24% this year and is about $45 from an all-time high. And with five-year Treasuries now yielding -1.16% once the effects of inflation are stripped out, the lowest close in seven years, there’s little reason to expect a slowdown in precious-metal buying as investors fret about the economic outlook, prospects for further outbreaks of Covid-19 and the impact of central-bank bond buying,” the report added.

“Gold is a superior form of purchasing power protection and as real rates dive significantly below zero here, gold is relatively more attractive as a hedge,” said Peter Grosskopf, chief executive officer at Sprott Inc.

The report also noted that precious metal exchange-traded funds (ETFs) have been a beneficiary of this growing demand for gold. Per data from Bloomberg, ETFs have increased their gold holdings by 28% to more than 105 million ounces.

“The combination of low-to-negative government bond yields plus a weakening U.S. dollar, and most importantly, massive central bank accommodation, supports financial demand,” said Stephane Monier, chief investment officer at Geneva-based Banque Lombard Odier & Cie SA. “This relationship between gold and real yields has held for the last decade and recent central bank interventions have reinforced the case for holding gold as a portfolio diversification tool.”

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

Getting ETF Gold Exposure

Traders looking to use leveraged exposure via ETFs can look at the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), which makes an indirect play on the precious metal via gold miners. NUGT seeks daily investment results, before fees and expenses, of either 300% or 300% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index.

Even if investors aren’t looking for a quick trade set-up in gold, they can opt for funds like the SPDR Gold Shares (GLD) for long-term exposure as an option to holding physical gold. GLD seeks to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations–the Trust holds gold bars and from time to time, issues baskets in exchange for deposits of gold and distributes gold in connection with redemptions of baskets.

Don’t Forget Bond Exposure

For ETF investors looking for bond exposure, here are a few funds to look at:

  1. Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR): seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects.
  2. Xtrackers USD High Yield Corporate Bond ETF (HYLB): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market Index. The index comprised of U.S. dollar-denominated high yield corporate bonds will concentrate its investments in a particular industry or group of industries to the extent that its underlying index is concentrated.
  3. Xtrackers Short Duration High Yield Bond ETF (SHYL): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market 0-5 Year Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index. The underlying index is designed to track the performance of short-term publicly issued U.S. dollar-denominated below investment grade corporate debt.

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