Gold steady in dollar terms, but up sharply in the euro since mid-May

DAILY MARKET REPORT

Gold is steady this morning at $1301 balancing a calmer Europe, at least for the moment, with a sharp drop in the dollar. Though the price remains range bound in dollar terms in and around the $1300 level, it has been a different story in euro terms. Since mid-May, when investors first began to worry about events in Italy, the price is up nearly 4% from €1090 per ounce to €1130 early yesterday. The Trump administration is forging ahead full force on $50 billion worth of tariffs on Chinese imports. Tensions are once again heating up in the Middle East.

In its most recent Market Report, Degussa, the Swiss gold refinery, sums up nicely why demand for gold is likely to remain strong in the months and years to come:

“What does it mean for gold’s value proposition? First, gold does not appear to be expensive at the current price. In fact, there is reason to assume that it is (to borrow a term from the investment world) undervalued. Second, gold – if you look at it as a form of money – offers a hedge against the vagaries of the fiat money world. It cannot be debased by central banks’ money printing, and it does not carry a default or counter-party risk. Reflected upon from this perspective, gold certainly has not lost its shine for the long-term oriented investor. This becomes clear once the investor realizes that gold is not an investment instrument but a form of money – in fact, the best and most honest kind of money available.”

Those vagaries have become all too apparent over the past few days – particularly if you happen to take residence in Europe.

Quote of the Day
“[T]he trigger for a crisis could be anything if the system as a whole is unstable. Moreover, the size of the trigger event need not bear any relation to the systemic outcome. The lesson is that policymakers should be focused less on identifying potential triggers than on identifying signs of potential instability.This implies that paying attention to macroeconomic “imbalances” may pay bigger dividends than trying to assess financial instability through highly disaggregated “risk maps” of the sort currently being encouraged by the G20 and the IMF. The latter are not only expensive to monitor, but potential rupture points in the financial fabric can change rapidly in real time.Perhaps more important, serious economic and financial crises can have their roots in imbalances outside the financial system.” – William White, chairman of the Paris-based economic and development review committee at the Organization for Economic Co-operation and Development.

Chart of the Day


Chart courtesy of tradingeconomics.com

Chart note: Italy’s political crisis spilled over to its bond market yesterday spiking the yield on its 10-year bond to over 3%. Since the beginning of May, when concerns about Italy’s political stability began to make headlines, the yield on its 10-year bond has gone from 1.77% to 3.16% as of yesterday. The market stabilized last night, but few see the crisis as passing its high point. Bloomberg cited Swedbank’s Par Magnusson and Filip Andersson as saying in a report to clients that “The Italian house is on fire, and it will spread if someone doesn’t pull out the fire extinguisher soon. Italy may become severely injured, but the EMU may die.” The euro suffered a major setback yesterday declining .75% against the U.S. dollar to $1.153 while all of Europe seemed to go into crisis mode overnight. Italy sneezes. Europe catches a cold. . . .or maybe worse.

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