The Daily Market Report: Gold Firm as Global Stock Rout Continues

21-Aug (USAGOLD) — Gold surged to a six-week high of 1168.32 as Chinese stocks took another beating. While the yellow metal backed off the highs in subsequent trading, weakness in U.S. shares is perpetuating a safe-haven bid.

The Shanghai composite fell another 4.3% on Friday after manufacturing PMI plunged to 47.1 in August, suggesting the 2nd biggest economy in the world continues to slow. Stocks were lower earlier in the session, but there are reports that the government was buying shares to support the market.

Sharp losses in China infected other markets around the world. Most Asian and European indices closed lower today. The DJIA was down more than 300 points intraday. The Dow appears poised for a fourth consecutive loss and potentially the biggest weekly loss in several years.

As people pile out of stocks, they are turning to gold; the classic safe-haven asset. Cash is less appealing because of the ongoing global effort to debase currencies. Even the recent uptrend in the dollar is looking tenuous amid diminished expectations of a Fed rate hike next month.

Without the much anticipated divergence in interest rates, the greenback is arguably overvalued at these levels. Even WSJ FedWatcher Jon Hilsenrath — whom has towed the Sep lift-off line since the beginning — suddenly has his doubts:

Unless these market developments and events abroad reverse, they are bound to weigh on the outlook of officials when they update their economic forecasts at next month’s policy meeting. A great deal will depend on their confidence in the health of the underlying domestic U.S. economy. Growth and employment data are tracking alright now, but is the market signaling a shift? If the forecasts move in the wrong direction, it will be hard for them to act on interest rates. — Jon Hilsenrath

Not even St. Louis Fed President James Bullard was inclined to try and arrest the stock market plunge today. He expressed optimism on jobs and growth prospects, but the Bullard-put from last year has apparently expired.

With both stocks and the greenback tumbling, the path of least resistance for gold is to the upside. And yet, the yellow metal remains below the average global cost of production. Arguably, even with the recent rise, gold remains a bargain.