Today the yellow metal jumped over the $1500 mark. This is a six-year high, as investors are rushing to buy gold and government bonds, as fears of a global recession due to the trade standoff between United States and China grow more real.
Investors Sell Stocks
To top that, investors sold stocks. The Dow Jones fell by 589 points during the first minutes of today’s trading and stocks continued a weekly slide, triggered by fears of a trade war between the two superpowers.
Central banks around the world are reducing interest rates, in a bid to lessen the pain from tariff battle. The central banks of India, New Zealand and Thailand, all dropped interest rates yesterday.
It is obvious, investors and central banks are preparing for economic trouble. My opinion is that the conflict between the US and China, will take a long time to resolve. The longer the trade uncertainty, the greater the risk of something bad happening.
As a result, investors will be running to put their money into gold, which tends to do well during times of uncertainty. This will definitely be a safe heaven bid for gold.
Bond Yields Fall
An unexpected rush of money into bonds is another sign of investor anxiety.
With investors rushing to the bond market, the ten-year treasury yield took a nose dive on Wednesday, dropping below 1,63%. This market phenomenon is also the case in Europe. Germany’s ten-year bond rates have reached a remarkable -0,6%. That means, investors who usually get interest, are instead paying holders of German bonds to park their money.
The rush to buy bonds, has lifted the amount of negative yielding bonds around the world to a record 15 trillion, according to Bloomberg.
Gold has set a new target and that is the $1600 mark per troy ounce. Troubletimes are ahead, the China and the US trade standoff, the nervous investors. Moreover, the central banks are lowering interest rates, and the stock market is overrated in my opinion. However, it is possible for a correction to take place as gold has seen a rapid increase in its value.