April 5 (Bloomberg) -- Gold remains an attractive investment even at record prices, fueled in part by the Federal Reserve’s $600 billion of Treasuries purchases through June, according to Bianco Research LLC in Chicago.
“I think the path of least resistance for gold is higher,” said James Bianco, the firm’s president, in a television interview on “Bloomberg Surveillance” with Tom Keene.
Gold futures for June delivery rose $19.50, or 1.4 percent, to settle at $1,452.50 on the Comex in New York, the highest closing price ever.
“Quantitative easing has been an inspiration for the massive, record speculation that we’ve seen for a lot of these commodities,” Bianco said.
Inflation may return to the economy by the end of the year, Bianco said. An end to the Fed’s asset purchases may lead to a rise in short-term yields relative to longer-term yields, Bianco said.
A difference of less than 1.5 percentage points between Treasuries maturing in two- and 10-years may hurt financial stocks, Bianco said. The gap is 2.66 percentage points, and has not been below 2.5 percentage points since Dec. 6.
“Financials are a large carry trade,” Bianco said. “They borrow at the short end of the curve, they invest at the long end of the curve. As long as it’s very steep they make money.” The yield curve is a measure of the differences between short-and long-term interest rates.
Policy makers should address the growth in the outstanding Treasury debt before it expands further, Bianco said.
“It’s going to be problematic as we move forward from here, especially if we continue to run big budget deficits,” Bianco said.
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