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 Gold is back on the defensive within the recent range, weighed by
further dollar gains. The dollar index extended to new 4-month highs, amid
ongoing speculation about the prospects of a September rate hike.
Manufacturing PMI for July came in better than expected at 52.9, a nine-month
high. While this may goose rate hike speculation, the CME's FedWatch tool
puts the probability at 19.5%, up less than 1% from yesterday. The market
remains less than convinced that the Fed is going to hike any time soon. The
odds don't even approach 50/50 going all the way out to June of next year.
The reality is that the trend for sovereign rates is still very much in the
other direction. David Fickling of Bloomberg calls the $9.2 trillion in
negative yielding sovereign debt a "tailwind" for gold. Do note the
trend, and the acceleration of that trend in July!
Frickling asks us to "reflect how weird this state of affairs has
become."
...stocks are now all about income, and bonds about
capital growth. It's the precise opposite of the usual situation.
But if investors are buying
zero and negative yielding bonds for capital appreciation, there must be an
expectation that rates are headed lower yet! This is the "greater fool
theory" in action. And I think investors have the central banks (I'm
looking at you ECB!) pegged as the next greater fool.
There once was a time when investors flocked to bonds in times of
uncertainty. Now they are a frothy spec trade.
If you really feel the need for a safe-haven component in your portfolio (and
you should!), physical gold is the answer.
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