“With the bond market unhinged and equities pretending that all is well,” precious metals “look like the cleanest shirts in the dirty laundry basket,” says Przemyslaw Radomski on Investing. Gold has proved its worth as a safe haven, gaining 9% since the start of the year and recently finishing its best quarter in nearly two years. By contrast, government bonds – another traditional safe haven – have endured heavy losses.
That hasn’t been an issue in the last few years: the safest bonds had been paying little, or even negative, interest. Yet bond yields are now rising. That normally means there is less reason to own the financial version of a “pet rock”, causing gold prices to fall, says Louis-Vincent Gave of Gavekal Research. But “gold and other precious metals have followed bond yields higher”. That suggests a belief that interest rates will remain far below inflation. “Deflation is no longer the main threat for portfolios”.
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