Gold and Currency Watch

Petroliam Nasional Bhd (Petronas) did a bond offering on 15 Apr 2020, raising USD 6 billion. The bond offering comprises US$2.25 billion 10-year, US$2.75 billion 30-year and US$1 billion 40-year conventional notes.

The 10-year conventional notes were priced to yield 3.65%, the 30-year conventional notes were priced to yield 4.55% and the 40-year conventional notes were priced to yield 4.80%.

The bond offering was oversubscribed by 6.2 times. This does not only reflect the markets confidence in Petronas credit strength, but it is also a sign where there is too much money seeking yield.

Time to get gold

A quick glimpse we can see that the central bank of major developed countries had decreased their interest rate to historical low value. A few years back, AUD and NZD was still the darling of carry trade trader where investors can borrow JPY at a very low-interest rate and invest in AUD/ NZD, both currencies deliver a much higher interest rate and investors can earn the interest spread.

With interest rate at near-zero and unlimited money printing activity, such an opportunity is virtually zero and everyone should start buying some precious metals. People who snubbed investing in gold claims that gold is not generating any dividends or interest income. However, when the return of holding a sovereign bond is literally zero, why should we invest in bonds but not gold?

"Gold is money. Everything else is credit." -- J.P. Morgan, 1912

US Dollar Index as the indicator

Also, investors should keep an eye on the US Dollar Index because currencies are one of the last independent financial barometers in the market right now.

The government bond and corporate bond markets have been nationalized by central banks. While stock indexes in the U.S. are disproportionately affected by the price movement of a few technology companies and share buyback actions from the companies management.

The FX market is likely large enough to overcome these limitations, making currency moves an even more important source of risk signals in these unprecedented times.

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