A Sub-Zero Wind Lights a Fire Under Gold
The value of negative-yielding government debt has risen by $2 trillion in the past month, adding impetus to the metal’s rally.
It’s hot, thanks to those sub-zero yields.
Photographer: Andrey Rudakov/BloombergThere’s a standard explanation when gold prices spike, as with their 10% appreciation over the past month: Uncertainty is driving haven demand. People are worried about war in Iran, or a trans-Pacific trade war, or Brexit. In times of crisis, people instinctively cling to bullion.
There’s certainly something to that. But an overlooked factor is what’s been happening in the other haven trade, government bonds. The value of debt trading with a negative yield – almost all of it government securities – has increased by more than $2 trillion since late May, and by more than $1 trillion since June 17. With interest-rate expectations for the weaker European economies getting caught in the slipstream of the U.S. Federal Reserve's switch toward monetary easing, the negative-yield debt market is now about 22% larger than it was a month ago. Below-zero debt now makes up almost 40% of the value of all government bonds outstanding.