Gold ETFs, including the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD), added to recent gains Wednesday as the yield curve again inverted, stoking fears of a recession. The yield curve inverts when yields on 10-year Treasuries fall below those on two-year notes.
Gold is also catching a bid because some market observers believe with low inflation and the potential for a slowing economy, the Fed may step in and cut interest rates multiple times before the end of this year to go along with the rate revealed last month.
Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive so that the money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
“The inversion, which has predicted the last five U.S. recessions, ‘is reigniting fears of an imminent recession in the U.S. And gold is catching a bid off that,’ says TD Securities commodity strategist Daniel Ghali,” reports Seeking Alpha.
Ambitious Estimates For Precious Metal
With gold’s recent strength and the yellow metal’s status as a safe-haven investment, analysts have recently been boosting price targets on the commodity. Some have even renewed calls for gold to hit $2,000 per ounce.
Analysts at European precious metals retailer, Degussa, also said that they see gold prices pushing higher through the rest of the year as global interest rates ultimately head lower. Degussa analysts noted that they see U.S. interest rates falling to 1.25 percent by the first half of 2020. Meanwhile, European interest rates could fall further into negative territory to -0.7% from -0.4%. With inflation expected to rise, this means that real interest rates could fall in negative territory, the analysts add. This is all good news for gold.
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Investors should also consider what triggered the latest yield curve inverse and that scenario, while ominous, is good for gold.
“Looking at what led the yield curve to invert — a lot of global macro picture is pointing to slowing global growth, which we’ve known for some time. But, the question is whether the slowing global environment will eventually lead to slowing U.S. economy or ultimately drag the U.S. economy into recession,” said Ghali in an interview with Kitco News.
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