There has been lots of speculation this week on the source of the gold demand. China is getting the blame, as it does for any anomalous price movement anywhere.
I’m wondering if it could be something more mundane. Recent signals from global central banks have been that rates will stay down at record low levels for a long-time to come. Bond yields are certainly signaling that is their anticipation.
The knock on gold has always been the fact that it does not have a yield; it’s dead money. If it doesn’t rise, you lose. On top of that, you had to pay to store and insure it. These days, you just buy an ETF with a mouse click and leave the details to others.
It’s free money that is likely supporting the gold trade and the growing supposition that money will be free, or nearly free, for much of the next year, if not more. That doesn’t remove the risk of an overbought selloff but it does make gold more attractive in this environment than it has ever been before.
