Now is the perfect time to hold gold - BNP Paribas

(March 9, 2020 - Neils Christensen)

(Kitco News) - Investors should look past gold’s short-term volatility and pay attention to the broader uptrend as the precious metal continues to look attractive in a negative bond yield environment, according to one market analyst.

In an interview with Kitco News, Monday, Harry Tchilinguirian, head of commodity research at BNP Paribas, said that because of low-interest rates now is the “perfect time to hold some gold.”

He explained that real yield on U.S. Treasuries is in negative territory, making gold’s opportunity costs nonexistent. He noted that Treasury Inflation-Protected Securities (TIPS) 10-year bonds are currently hovering around negative 50 basis points.

While TIPs yields are trading at all-time lows, Tchilinguirian said that there is still room for them to go lower. Even after the Federal Reserve’s emergency rate cut last week, BNP Paribas still expects the Federal Reserve will cut another 50 basis points following its March 18 monetary policy meeting.

“Gold is going to continue to attract investor interest, driven by the monetary policy environment that continues to ease,” he said. “Faced with no opportunity costs, gold looks good.”

In the current low-rate environment, Tchilinguirian said that he sees gold prices pushing to between $1,700 and $1,725 an ounce. He added that although gold is in a strong uptrend, the market will be sensitive to day-to-day equity selloffs. The comments come as gold prices have fallen from their session highs. April gold futures last traded at $1,673.20 an ounce, relatively unchanged on the day.

“We don’t expect a rush to $1,800 but a steady move higher. We expect that gold prices will continue to zig-zag higher,” he said. “Investors who bought gold in June definitely have ammunition to offset the losses in equity markets. Gold has been good hedge against falling equity prices. Now we see that investors are using that hedge to prop up their equity positions.”

Not only will the Federal Reserve continue to ease interest rates, but Tchilinguirian said that BNP expects that investors, even faced with negative yields, will continue to buy high-quality sovereign debt.

Investor sentiment continues to drop as expectations rise that the spreading coronavirus will weigh on economic growth. Tchilinguirian said that in this environment, it more about capital preservation.

“Right now, I don’t think there is a point where investors will say that yields are too negative,” he said.

Not only are bond yields expected to go lower, but Tchilinguirian said that rates will remain low for an extended period of time as it will take time to recover from the latest market turmoil.