Why gold can continue to rise as long as US stocks do

The Nasdaq COMP, heavy on technology,
+ 0.74%
continues to set new records, and gold is GC00,
+ 0.54%
on a streak, closing at its highest level since 2012. That’s not the typical correlation, but these are not typical times.

Chris Weston, head of research at Australian broker Pepperstone, says the same underlying reason is driving both: the US bond market. USA

It’s not easy to see in price action, and the 10-year TMUBMUSD10Y yield,
barely moved on Tuesday. The move is in real or inflation-adjusted terms, as the performance of Treasury Inflation-Protected Securities, or TIPS, is heading into deeper and deeper negative territory.

Gold is seen by the market as a zero-coupon bond, so when Treasury yield adjusted for inflation falls, the relative attractiveness of gold increases, Weston notes.

Over two years, 90% of the change in gold can be explained by the US Treasury. USA Adjusted for inflation, he says.

At the same time, speculative interest in gold is slightly below average, according to Commodity Futures Trading Commission’s positioning data. He acknowledges that the flow of money accumulated towards gold exchange traded funds moves progressively higher.

He’s bullish on gold ($ 1,796 is his next target), but says the clear risk for gold is higher real returns, and oddly, a stock sell-off could hurt the yellow metal if it causes DXY in dollars,
+ 0.15%

“Until then, the path of least resistance is highest,” he says.

The buzz

The recent surge in coronavirus cases was in the spotlight when the Texas governor urged residents to stay home and let cities and counties impose stricter regulations. The number of people currently hospitalized rose 5% on Tuesday, the biggest increase since April 14, according to data analyzed by Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The United States Trade Representative said he is considering tariffs on additional goods worth $ 3.1 billion from France, Germany, Spain and the United Kingdom. The potential tariffs are related to the protracted dispute between aircraft manufacturers Boeing BA,
and Airbus AIR,
The New York Times reported separately that the United States is considering reimposing tariffs on Canadian aluminum.

The International Monetary Fund will publish its global economic outlook at 9 am EST.

Computer manufacturer Dell Technology DELL,
+ 1.49%
is considering spinning off its $ 50 billion stake in cloud software company VMware VMW,
+ 0.83%,
or buy the company directly, according to The Wall Street Journal. Tax regulations prevent a spin-off before September 2021.

Major League Baseball issued a 60-game schedule Tuesday night, while Los Angeles Lakers shooting guard Avery Bradley said he would be left out of the National Basketball Association season when it resumes.

North Korea said Wednesday that leader Kim Jong Un suspended a planned military retaliation against South Korea.

Sign up for Barron’s Investing in Tech series, which will feature the Synchrony CEO on Wednesday about the future of payments.

The markets

US Stock Futures USA ES00,
They were weaker on Wednesday, due to virus concerns and tariffs.

Gold advanced, while CL.1 oil futures,
it fell.

The graphic

In its quarterly investor survey, RBC Capital Markets asked its participants to list what keeps them awake at night, whether it’s something that makes them nervous or excited about the stock market. The election, the Federal Reserve and the coronavirus top the list. Overall, the survey of 107 institutional investors found them increasingly pessimistic and an increase in those who say valuations are a problem, a new high poll. Cyclicals topped the list of what they are buying, followed by value stocks, while energy, “expensive stocks” and financials topped the list of what they are selling.

Random readings

The chief executive of plant-based food maker Impossible Foods said his industry will completely replace animal meat in 15 years.

Hundreds of thousands of barrels of unused Guinness beer have been reused to fertilize Christmas trees.

A Saharan dust cloud will bring misty skies and breathtaking sunsets to the United States.

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