Glowing dawn or the ultimate bubble

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
These words came from George Soros in 2010. 
But something shifted the sentiments in his heart or he was attracted by the crackling sound of the golden mines. During the first quarter of the year George Soros cut by 37% US stock holdings owned by Soros Fund Management and purchased $ 264 million worth shares of the world's largest gold miner Barrick Gold Corporation (USA) (NYSE: ABX). 

In December 2015 gold price was flirting around $1050 level. As gold was staying logged into this low, we witnessed incredible sell-offs. All market participants were wondering whether gold mining companies could survive and this put the question how exactly is their profit. But at this time gold miners were not the losers. In particular Barrick Gold’s net production price in December 2015 was $850 per troy ounce.

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Several circumstances influence the gold strength and could support it in future.

Fears surrounding China’s economy, the currency devaluation and the capital outflow led to risk off tone in markets. While these volatile factors exist, Fed will keep its dovish policy. And as long as geopolitical risk persists, gold will sustainably grow.

The bond markets are yielding negative and a third of the sovereign debt has a negative yield.BoJ and ECB keep the negative interest rate policy and both have reached the largest increase in sub-zero yielding government debt. 

And last, but not least the trend of the accelerating government bonds that have zero to negative return.

It’s not clear yet how fundamental factors will shift in the nearest future, but in the long term gold will shine brighter.