Gold, silver seesaw around resistance, post strong year to date performances at mid-month
(USAGOLD – 8/14/2020) – Gold seesawed around the $1950 mark and silver $26.80 as both metals seem to have encountered some resistance at those levels. Some speculator caution is warranted and should be expected after the big run-up since March, but the greater influence on the market remains the amount of stimulus pumped into the global economy since the pandemic began and where that created money is likely to end-up. As we arrive at mid-month, gold is up 27.5% year to date and silver a difficult to overlook 49% – those numbers after all is said and done and with the recent corrections taken into account. At least some of the trillions pumped into the economy and financial markets seems to have made its way to the precious metals. This morning gold is down $3.50 at $1952. Silver is down 74¢ at $26.84.
In an article published recently in Pensions Age magazine, the World Gold Council’s Krishnan Gopaul offers a list of reasons why pension fund managers might look to gold for help during these highly uncertain times. “Gold historically benefits from flight-to-quality inflows during periods of heightened risk,” writes Gopaul. “By providing positive returns and reducing portfolio losses, gold has been an effective diversifier during times of systemic crisis when investors tend to withdraw from equities. The large and liquid market for gold means it can be sold to meet liabilities while the values of less liquid assets correct. The greater a downturn in stocks and other risk assets, the more negative gold’s correlation to these assets becomes. … In fact, its price, measured in pound sterling*, has increased by an average 11.6 percent per year since 1971 when it began to be freely traded following the end of Bretton Woods. And it has outperformed many stock, bond and commodity indices over multiple periods since then. This is even more significant given gold does not pay a coupon or dividend because, as a hard currency, it carries no credit risk.” Needless to say, pension funds are not the only sector that might benefit from gold’s track record and financial attributes.
*Editor’s note: Though Gopaul chooses to cite gold’s performance in terms of the British pound since 1971, it has a comparable performance history when priced in dollars.
Chart of the Day
Sources: ICE Benchmark Administration, U.S. Treasury, St. Louis Federal Reserve [FRED]
The national debt trendline (graphed quarterly) does not reflect the current $26.5 trillion figure.
USAGOLD note: The problem with monetary stimulus is that it requires takers, i.e., people and businesses willing to borrow and spend. Private borrowers, though, are not as prolific as the Fed or federal government would like. The federal government, on the other hand, is a ready borrower and a big one. In fact, as Manhattan Institute’s Brien Riedl recently pointed out in a National Review article, the Fed has already financed roughly half of government spending to combat the economic hit from COVID-19. How is all of this a ‘tailwind’ for gold? The chart above tells the story at a glance. (The St. Louis Fed logs public debt quarterly. As a result, this chart does not reflect the current aggregate national debt at over $26.5 trillion.)