Some commentators were all over the gold price this week, with Kitco News writing gold “took off like a rocket this week.
“The last three days in the metals have been strong, with both gold and silver exploding higher,” the Kitco News report said.
Emotive language like “exploding” and “taking off like a rocket” reinforce the impression gold is on a tear; indeed, its rise has been significant.
The price of gold hit a three-month high Tuesday, at $1,327.9 per troy ounce as investors continued to buy into exchange-traded and physical gold. Inflows into the world’s largest gold ETF, the SPDR Gold Trust (P:GLD), rose by 2% Monday. That marked its biggest one-day gain since 2016, the Financial Times reported, part of a wider inflow that bought holdings in gold-backed ETFs to their highest in a year.
Investors are motivated by a desire to hedge against weakness in global equity markets and uncertainty about the future of trade relations between the U.S. and China, the article suggests.
Certainly, growth is slowing. The DailyFX reports May’s U.S. service-sector ISM and PMI reports, as well as the Fed’s Beige Book survey of regional economic conditions, are coming into alignment, suggesting the U.S. economy is belatedly reflecting signs of a now 15-month slowdown in global growth.
There are suggestions the Fed’s next move will be a rate reduction, with markets predicting the probability of two 25-bps cuts before the end of the year at 87.8%. Interest-rate-induced dollar weakening, with the accompanying possibility of higher inflation, would be a boost to gold — but some caution is needed before we accept Kitco’s $1,400 per troy ounce target for gold.
The Fed monetary easing has already been factored into the market and, in part, gold’s rise has reflected that.
Global political and economic developments would have to take a dire turning for the worse to stimulate a rise above the mid $1,300s. That’s not impossible, but at some point sanity has to prevail and progress made in trade negotiations – or am I missing the intended outcome?
by Stuart Burns