Gold attempts consolidation above $1800; seen as ‘broad protection against unknowns’

(USAGOLD – 7/14/2020) – Gold is attempting to consolidate gains above the $1800 level this morning in a return of quiet summertime trading.  Lately, a firmer dollar has been a restraint on pricing while concerns about a resurgence of the pandemic have acted as an incentive. The yellow metal is up $2 on the day at $1807. Silver is up 5¢ at $19.21. Demand continues to run at consistently high levels for summer trading with both institutional and private investors adding to stockpiles primarily for safe-haven purposes and in response to the lack of a real rate of return on yield investments.

“Even when hedge funds have a world of risk-protection products at their disposal, such as going short the S&P 500 or going long the volatility of volatility, many still buy gold,” writes Bloomberg’s macro commentator Eddie van der Walt in an analysis posted at Zero Hedge. “Why? Because it offers broad protection against unknowns, rather than targeted insurance against identified risks. During the darkest days of March, the supposed haven metal fell alongside equities and other risky assets as investors rushed to the liquidity of short-end Treasuries. Even forgiving that failure, it’s a blunt instrument compared with other forms of portfolio insurance. Yet the price of gold has been chased to eight-year highs above $1,800/oz. Investors in exchange-traded funds built a stockpile large enough to supply global gold demand for three quarters of a year. And luminaries including Paul Singer, David Einhorn, and Crispin Odey have told backers they’re bullish.”

Chart of the Day

overlay chart showing St. Louis Fed's weekly economic index and goldSources: Daniel Lewis, St. Louis Federal Reserve [FRED], ICE Benchmark Administration

Chart note:  As you can see, the drop since early March in the Weekly Economic Index is worse than the one during the 2008 financial crisis. As a matter of interest, we added the price of gold. At the moment, the index is in recovery mode though it does appear a bit weak at this juncture.  Stay tuned.  We will post this chart at from time to time to see if we get a “V”, “W”, “Nike swish” or “lightning bolt” – and gold’s response.  Please note that the St. Louis Fed now incorporates a recession bar in 2020 (in grey).

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