(Bloomberg) -- Hedge funds are turning to gold for refuge as the world’s stockpile of negative-yielding debt grows bigger by the day.

The yellow metal is favored by Ensemble Capital’s Damien Loh, a former options trader at JPMorgan Chase & Co., as global bond valuations reach nosebleed territory. AMP Capital Investors Ltd.’s dynamic fund is also backing bullion, while Morphic Asset Management Pty is betting on gold to outperform the dollar.

“We’re on watch for a recession, and I think many roads at the moment still lead to gold,” said Geoff Wood, Morphic’s head of macro and risk in Sydney. “I’ve got absolutely nothing on” for bonds, he said.

The debate on how low bond yields can go is hotting up as the relentless rally in global fixed-income markets shows no signs of slowing amid increased concern about an economic downturn. That’s sparked a conundrum for macro funds hunting for yield and returns. Enter gold, which has risen 18% this year -- well ahead of fellow havens such as the yen, Swiss franc and Treasuries.

A slew of disappointing economic data in China and Germany, and Wednesday’s key yield curve inversion -- often considered a harbinger of recession -- has sent investors rushing anew to haven assets this week. While gold bears often highlight the metal doesn’t offer a yield, gold bugs can point to the world’s stockpile of negative-yielding bonds reaching a record $16 trillion on Wednesday.

“Bonds are really expensive and I’m staying out of it,” said Loh, Singapore-based chief investment officer at Ensemble. “There are better trades in safe havens, including long gold given bond yields are at next to nothing.”

Fears of recessions though may be misplaced, according to central bankers. The U.S. economic conditions are “quite good” with unemployment near a 50-year low, said Federal Reserve Bank of St. Louis President James Bullard. The Reserve Bank of Australia’s No. 2 official weighed in on the debate on Thursday, questioning the value of using the Treasury yield curve inversion as a sign of recession.

“At the moment the U.S. economy is actually growing above trend so they’ve got a fair way to slow from here,” said RBA Deputy Governor Guy Debelle. Trade disputes are a key risk, though, he said.

Read how a JPMorgan strategist expects a 0% yield for 10-year Treasuries by 2021

In Sydney, AMP’s Nader Naeimi is not taking any chances and is buying both bonds and gold. He is cognizant that bond valuations are looking lofty after the run up.

“Long bonds, long gold” is the way to go, said Naeimi, who heads AMP’s dynamic markets fund. “Bonds are expensive and crowded, but a catalyst for a reversal is not in place yet.”

To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, ;Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen, Shikhar Balwani

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