Hawaii Six O - Gary Wagner
Gold trades and closes above $1800 per ounce
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
For the first time since September 20, 2011 gold futures closed above $1800 per ounce. On Tuesday July 7th, gold for bulls stormed the long standing in almost 10 years closed above that key price level. On Wednesday gold pricing traded to an intraday high of $1829 before settling at $1820. The last two days gold pricing has been under pressure as short-term futures traders’ pulled profits. However even with this pressure as of 3:30 PM EDT the most active August Comex contract is currently fixed at $1802.20, which is a net decline of $1.60 on the day.
I have been on record for quite some time saying it is not “if, but, when” gold is able to effectively close above $1800 per ounce, well that “when” occurred this week. More importantly the underlying fundamental factors which took gold pricing from $1450 per ounce in March 2 above $1800 are still in play.
The spread of the Corona virus quickly spread across hotspots in China. It took less than three months for the contagion to reach the shores of America. By Mid-March it had grew to a global crisis forcing 95% of the world’s population under lockdown by the first quarter of this year. The immediate response e was to effectively shut down their economies and have citizens self-quarantine. This necessary move resulted in mass furloughs which lead to in a global economic contraction.
According to the Washington Post, “As covid-19 infections continued to trend upward across the United States, new coronavirus cases in the past 24 hours worldwide hit a record high on Friday, according to a tally by the World Health Organization. The global health agency reported 228,102 new cases, surpassing the previous biggest increase of 212,326 on July 4 and with the U.S., Brazil, India and South Africa leading in new infections. Globally, more than 552,000 deaths and 12.2 million cases have been confirmed.”
The economic fallout from the pandemic necessitated massive aid, and concurrently forced central banks in each country provide economic stimulus. The costs of these programs have been staggering. The United States through the U.S. Treasury and the Federal Reserve have allocated over $6 trillion.
The European Central Bank’s President Christine Lagarde acknowledged that an economic recovery for Europe is “uncertain and fragmented”. According to the Financial Times, the ECB initiated a “robust crisis response … which flooded the economy with vast amounts of ultra-cheap money that has so far prevented the pandemic from spiraling into a fully-fledged financial crisis.” However according to Eurostat, the Euro zone economy faces the sharpest economic contraction on record forecasting that the GDP will decline by 12% in 2020.
According to miningweekly, the GDP and China is contracted by 6.8% in the first quarter, which marks the largest drop on record.
The collective response by central banks globally is the most massive expenditure of capital in history. Even as this pandemic continues to ravage countries worldwide, we know that eventually this virus will subside. It is however the economic fallout which will follow that remains a complete uncertainty. This massive central bank intervention requires an enormous amount of capital which will devalue the currencies worldwide. As currencies become less valuable, market participants and investors will seek the safe haven asset; gold.
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Wishing you as always good trading and good health,