Gold Set to Test $1,700 Resistance as U.S. Yields Fall to Record Lows
I don’t know about you, but I never thought I’d see the day when the yield on the 30-year Treasury bond dipped below 2 percent, let alone 1.8 percent.
And yet that’s precisely what happened on Tuesday as investors weighed the global impact of the coronavirus virus, or COVID-19. On a nominal basis, the 30-year yield briefly touched 1.7885 percent. Not only is that a record low, but it doesn’t even clear the current rate of inflation, as weak as it is.
The 10-year yield also tumbled to a new all-time low, hitting 1.32 percent, just barely beating the previous record set in 2016 soon after the Brexit referendum.
Government bond yields have plummeted elsewhere. In Germany, the entire yield curve has fallen back below 0 percent for the first time since October 2019. This has helped the total pool of negative-yielding debt around the world to jump to $14 trillion.
Monday’s stock market selloff extended into Tuesday as the Centers for Disease Control and Prevention (CDC) warned that it isn’t a matter of if but when we’ll see a full-blown pandemic.
“We are asking the American public to prepare for the expectation that this might be bad,” commented Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases.
Half an hour before the market close on Tuesday, the S&P 500 was off nearly 8 percent from its high only four trading sessions prior, and more than 60 percent of the large-cap index was in correction territory or worse. (A correction is generally understood to have occurred when an asset is down more than 10 percent from its recent high.)
Gold at a Seven-Year High in USD, All-Time Highs in Various World Currencies
In such a risk-off climate, gold has historically been favored as a safe haven, and judging from its price action since the coronavirus began spreading in January, it appears to remain so today. Priced in the U.S. dollar, the yellow metal traded up 14 out of the past 16 days through February 25, setting itself up to test resistance at $1,700 an ounce, a level unseen since December 2012.
Overseas, gold has set fresh all-time highs in a number of world currencies, including some in top gold mining economies, including Russia, Canada and South Africa.