Gold futures are at their highest point for six years, as expectations grow that rate cuts in both the US and Europe will send bond yields lower.

MarketWatch reports that the higher prices for gold were largely driven by Christine Lagarde’s nomination to lead the European Central Bank and the support of Christopher Waller and Judy Shelton to lead the US equivalent.

All three are considered somewhat doveish, which supports the concept of interest rates getting even lower.  

“By rejecting Germany’s Jens Weidmann and choosing IMF chief Christine Lagarde to head the ECB, the Eurozone’s political leaders have shown they won’t hear any more hawkish talk from Frankfurt,” Adrian Ash, director of research at BullionVault, told MarketWatch

“That should please gold bulls as much as it relieves Eurozone bond traders.”

Gold is generally seen as a safe-haven not only from geopolitical tensions, but easing yields from bonds.

When central interest rates go down, demand for bonds goes up as investors move away from cash-backed instruments (but still wanting a safe bet), which in turn reduces yield.

According to MarketWatch, the latest revelations sent investors into a bond-buying frenzy.

The German 10-year government bond yield (TMBMKDE-10Y, -4.72 percent) slid to negative 0.386 percent, pushing deeper into record negative territory. 

Meanwhile, the Italian 10-year government bond yield (TMBMKIT-10Y, -13.57 percent) plummeted 25 basis points to 1.606 percent. The U.S. Treasury note (TMUBMUSD10Y), hit its lowest point since 2016.

Against that backdrop, August gold added $US12.90 ($A18.34), or 0.9 percent, at $1,420.90 an ounce on Comex, after touching a high of $1,441. 

Prices for the most-active contract marked their highest settlement since May 14, 2013, according to Dow Jones Market Data.

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.