Gold inches higher, Hong Kong investors flock to gold according to the SCMP

(USAGOLD –1/29/2020) – Gold inched higher in early U.S. trading as markets awaited the outcome of this week’s Federal Open Market Committee meeting and continued to sort out the effects of the coronavirus outbreak in China.  It is up $1 on the day at $1570 after dipping to $1564 in overseas trading.  Silver is down 1¢ at $17.49.  In Monday’s DMR we referenced a Reuters report that the coronavirus had “subdued” demand for gold inside China itself, then added: “one wonders how long that will last.”

This morning we got an inkling on that score from a report in the South China Morning Post. “The Hong Kong gold market,” it reads, “rose on the first trading day of the Year of the Rat on Wednesday, rising to its best lunar year debut since 2016, as investors flocked to the safe haven asset amid concerns over the Wuhan coronavirus outbreak.” It goes on, at the same time, to identify volatile stock markets as another prime incentive for gold demand and, as the Chinese Gold and Silver Exchange Society’s Haywood Cheung put it, “a lot of political uncertainties worldwide.”

John Authers, the long-time market analyst at Financial Times who now plies his trade at Bloomberg, says this morning “that perhaps it is best to say that the virus provided an excuse to sell stocks, rather than a reason.”  The same, we would add, might be said about buying gold.  Authers’ column goes on to explore the overvaluation of stocks as the more compelling reason for paring holdings.

Chart of the Day

Overlay chart showing the developing correlation between the price of gold and growth in the money supply (MZM)

Chart note:  We have been monitoring this chart over the past several weeks because the message it conveys is so compelling at this point in time. It shows the developing correlation between gold and money supply growth as represented by MZM.  We have not focused on this relationship in years. The upward trajectory in MZM, a broad money supply measure, began in May and has been relentless ever since.  To what we owe this unexpected phenomenon remains to be determined, but our guess is that it has to do with both declining rates and commercial banks’ deployment of excess reserves.  Whether or not it will result in price inflation down the road (the Fed’s fervent wish) remains an open question, but, at the very least, we can say that money supply growth is showing some signs of life.

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