Gold is financial market’s ‘story of the year,’ says Sprott’s Grosskopf

(USAGOLD – 7/28/2020) – The dramatic action in the gold market overnight is likely to leave analysts scratching their heads and wondering what is likely to happen next.  After zooming to the $1984 level in the early hours of the overnight market, gold promptly plummeted to $1912 where it found support. It is now trading at $1939 – down only $6 from yesterday’s close after a top to bottom swing of $72. Silver is down 73¢ at $23.94. The price recoveries in both metals are an early sign that a ‘buy the dip’ mentality might be developing among precious metals investors. The headline in this morning’s Financial Times sums up neatly what drove gold to all-time highs yesterday: Dollar hits two-year low as gold soars on fears over virus-hit US. “I think it is the story of the year in financial markets,” said Sprotf’s Peter Grosskopf in a separate Financial Times article on gold’s strong performance. “Gold has finally come on to Main Street as an asset people actually need to have.”

Chart[s] of the Day

bar chart illustrating the real rate of return on gold since 2000

chart showing the real rate of return on the dollar 2000 to present

Sources:  Bureau of Labor Statistics, ICE Benchmark Administration, Board of Governors Federal Reserve, St. Louis Federal Reserve [FRED]

Chart note:  Analysts often cite the real rate of return on yield instruments as one of the inducements for gold ownership. Gold has provided a real rate of return in 13 of the past 20 years.  The dollar, using the rate of return on one-year Treasuries as a benchmark, has provided a real rate of return in only six of the past 20 years. With the Fed promising to hold rates near zero until 2023, gold prospects have been significantly elevated among money managers and private investors alike.

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