PDAC 2016: Don Coxe sees pension funds driving gold prices higher in bondholder backlash

TORONTO – Pension funds and other long-term investors sick of negative bond yields could drive up gold prices within the future years, said famed investor Don Coxe.

Negative interest rates happen to be adopted by an increasing number of central banks in the past year, using the Bank of Japan becoming the latest in January. The policy tool has been used in order to spur more inflation and growth by looking into making cash hoarding expensive.

Why should someone wish to possess a five-year bond having a negative rate of interest?

Coxe, chairman of Coxe Advisors LLC in Toronto, told a crowd in the 2016 PDAC Convention that it is inevitable that forcing investors to pay for to carry bonds will result in a backlash. Which will eventually drive money into alternative assets, which gold could prove among the big winners.

“Why must someone want to possess a five-year bond having a negative interest rate?,” he explained. “I believe this is actually the single biggest new argument about why gold will probably be re-valued.”

Gold investors happen to be battling with five years of declining prices for that rare metal, which peaked in 2011 at US$1,900 an ounce. The price decline has followed a broader bear marketplace for commodities.

Bond prices have posted massive gains for the reason that time. Despite the U.S. Federal Reserve moving to hike its benchmark rate of interest in December, the yields of numerous planet government bonds probed new lows earlier this year (bond yields move inversely to prices).

Yields could go even lower if more central banks go for negative rate policies. In a report last month, Citigroup asserted a handful of central banks are likely candidates to adopt negative rates in the next few years, with Israel almost certain to go negative later this year. 

“A negative yielding bond isn’t something valuable,” said Coxe. “Pension money is going to search for something [to invest in]; you’re telling me gold is riskier than a negative yielding bond?”

Coxe asserted investors should pay attention to whether gold can break over the US$1,300 mark to determine whether a longer-term upward move could be sustained. The precious metal is currently hovering at a 13-month a lot of US$1,270.90 a troy ounce, based on the April future contract in Ny.

Coxe asserted it’ll still take some time for investors to come back to gold, especially because of the poor performance of history few years, stating that the marketplace is getting accustomed to the precious metal no longer being an “obscenity.” 

“My feeling is that this has only started to superate through the minds of investors,” he said.