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Gold is behaving more like a meme stock than a safe-haven asset, Bill Gross told Business Insider.
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After rising this year, the precious metal suffered its worst single-day drop in 12 years on Tuesday.
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The billionaire “Bond King” said it was “exhibiting characteristics of meme and momentum stocks.”
Gold is trading more like a trending stock on Reddit than a haven for investors, and may have peaked after its record rise, billionaire investor Bill Gross told Business Insider.
The yellow metal fell to 6.3% on Tuesday, suffering its worst fall in 12 years. The drop coincided with an even steeper 8.7% drop in silver spot prices.
The moves suggest investors are taking profits after gold and silver’s record gains this year, and perhaps acting on Gross’s latest warning.
After warning investors in a Friday post on
Gross, who co-founded PIMCO and grew its flagship Total Return Fund to $270 billion over nearly three decades, meant that the price of gold has skyrocketed in part due to hype and speculation, making it more volatile and vulnerable to a sudden, sharp drop.
Gross told Business Insider that gold was still “sensitive to short-term interest rates,” referring to the metal’s tendency to rise in price when borrowing costs fall.
This is because falling rates make gold more attractive to investors relative to cash and bonds as their yields decline. Lower rates can also accelerate inflation, making gold a more attractive hedge against rising prices, and signal economic problems, fueling demand for gold as a safe investment.
Gold has also soared this year because central banks have been buying historically large amounts due to “political uncertainty,” Gross said. Trade wars, military conflicts and political discord have fueled doubts about the prospects for markets and the global economy.
Gross told Business Insider that gold would likely “hold up better than stocks” in the coming weeks, adding that a season of disappointing earnings could slow the bull market. But he said there could be a pullback in prices after two strong months of trading, creating “perhaps a better time to buy.”
The veteran investor said that “momentum, politics and perhaps interest rates will be dominant factors” in the path of the gold price.