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Gold Jumps 1.8%; Biggest Rally Since March as U.S. Enters Recession

Commodities Jul 28, 2022 05:04PM ET
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By Barani Krishnan

Investing.com -- A U.S. recession means different things to different investors.

To those in stocks, it was an opportunity to chase up stock prices on the reasoning that the Federal Reserve might be benign from here with rate hikes. For the long-oil crowd, it was time to be less presumptuous about demand, given the strong correlation between the economy and energy usage. To bulls in gold, it was a sign that perhaps some serious hedging will begin from now with the yellow metal.

Thus, gold had its biggest one-day rally since March on Wednesday after the Commerce Department said in the first of three estimates that U.S. gross domestic product probably declined 0.9% in the second quarter, after an established drop of 1.6% in the first quarter.

The back-to-back quarterly declines in GDP officially confirmed months of speculation that the United States was headed for a recession. It also unleashed a bull force in gold, a market that had been boxed up for weeks on end with pedestrian price moves that sometimes were no more than a couple of dollars.

Benchmark gold futures for August delivery on New York’s Comex settled its latest session up $31.20, or 1.8%, at $1,750.30 an ounce, after a session peak at $1,755.

Gold is breaking out now that a peak in Treasury yields is firmly in place. Stagflation is here to stay and that should be good news for gold prices. The U.S. economy is heading towards a recession and as long as Wall Street believes the Fed will deliver a slower pace of tightening, gold should start seeing safe-haven flows again.

“Gold’s biggest risk was that the economy was remaining robust and that the Fed might need to be more aggressive with rate hikes,” Ed Moya, analyst at online trading platform OANDA said.

“The risk of a full-percentage rate hike by the Fed is long gone,” said Moya. “Gold is breaking out now that a peak in Treasury yields is firmly in place. Stagflation is here to stay and that should be good news for gold prices. The U.S. economy is heading towards a recession and as long as Wall Street believes the Fed will deliver a slower pace of tightening, gold should start seeing safe-haven flows again.”

Gold is supposed to be a hedge against inflation but it has not been able to hold up to that billing for most of the past two years since hitting record highs above $2,100 in August 2020. One reason for that has been the rallying Dollar Index, which is up 11% this year after a 6% gain in 2021.

The dollar, a contrarian trade to gold, has fallen almost 1% combined the past two days against a basket of six other major currencies.

Moya, however, said gold could likely face strong resistance at around the $1,800 level.

Gold Jumps 1.8%; Biggest Rally Since March as U.S. Enters Recession
 

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Comments (5)
Andrew Ulferts
Andrew Ulferts Jul 29, 2022 2:35PM ET
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Barani, remember last week when I said the oil demand narrative would flip this week, just in time for an earnings pump? I do. Same story over and over. Market manipulation, helped along by coordinated propaganda. You could do a story on it, but no publishers would let you take it public. They’d probably make you disappear. Prices will rise for a while, then dump, then next quarter’s earning season they will pump again. No big deal if the “news” didn’t change along with the swings. Enemy of the people. (Not you) fake news.
ade yusuf
ade yusuf Jul 29, 2022 5:27AM ET
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I totally agree with your statement sir, this makes a lot of sense, although the government doesn't recognize this as a recession, but the data are undeniable
ade yusuf
ade yusuf Jul 29, 2022 5:27AM ET
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I totally agree with your statement sir, this makes a lot of sense, although the government doesn't recognize this as a recession, but the data are undeniable
Jeremy Johnson
Jeremy Johnson Jul 28, 2022 7:27PM ET
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Unless I'm mistaken, according to the COT report it also looks like Commercials are accumulating.
jason xx
jason xx Jul 28, 2022 5:46PM ET
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Not a recession stop spreading false information just because you fell for an old wives tail spread before the information age...
Andrew Allen
Andrew Allen Jul 28, 2022 5:46PM ET
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fed
Andrew Allen
Andrew Allen Jul 28, 2022 5:46PM ET
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spook, bot, etc.
Barani Krishnan
Barani Krishnan Jul 28, 2022 5:46PM ET
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Jason, I appreciate the humor. But that's what convention says based on the data. I didn't "fall" for anything. Bests.
Tom Scheuermann
Tom Scheuermann Jul 28, 2022 5:46PM ET
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I'm 90% sure that was sarcasm
 
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