The Daily Market Report: Gold Firms Within Range on Softer Dollar

04-Aug (USAGOLD) — Gold rebounded within the range in overseas trading, but remains below $1,100. The yellow metal has been buoyed by a softer dollar as signs of a slowing U.S. economy have sapped confidence that the Fed will hike rates next month.

U.S. factory orders rose 1.8% in June. That was slightly below expectations, but even with the June gain, the annualized pace remains a deeply negative -6.2%. That makes eight consecutive months of y/y declines in factory orders. ZeroHedge pointed out this morning that “this is the longest streak of declining factory orders outside of a recession in history.”

It is this kind of uneven data that may ultimately give the Fed pause when it comes to rate lift-off. However, simply looking at the inflation data of late should put the brakes on that first rate hike.

Energy prices are decidedly back under pressure, with oil back within striking distance of its March lows. Industrial metals like copper and aluminum — along with platinum and palladium — are plumbing 6-year lows.

The commodities complex as a whole is signaling recession and deflation. That’s not the environment where a prudent central bank would be looking to raise rates.

There has been a lot of negative financial press coverage of gold recently, mostly centered on the notion that in the absence of inflation, there is little reason to own gold. However, as our own Michael J. Kosares reminded us yesterday, the last big run up in the price of gold occurred in a “distinctly disinflationary period.”

. . . since the dangers and effects of deflation are similar to those of disinflation only more exaggerated, gold elevated its reputation as a deflation hedge as well. That piece of history, though irrefutable, is conveniently ignored in these orchestrated press attacks on gold and gold ownership. – Michael J. Kosares

Kosares goes on to point out that demand for physical metal has increased as a result of the price decline being perpetrated in the paper market. “Investment gold demand, in conclusion, has become a juggernaut, and one likely to remain in place as long as widespread financial system risks remain a part of the investment equation,” said Kosares.

Widespread system risks are still pretty clearly evident. China is still trying desperately to dodge a hard-landing. Greece remains a mess, even as it negotiates a third bailout from its creditors. Puerto Rico defaulted on huge debt payment yesterday, making it the biggest maniple default in U.S. history.

That’s not to mention a raft of economic and geopolitical hotspots that could conceivably trigger the next black-swan event. This is what most gold buyers are really looking to protect themselves from, rather than inflation risks.

That is clearly evidenced by recent robust demand. Insurance against the unforeseen is cheap right now and investors are taking advantage to lay-in some protection.