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Gold firing on all eight cylinders, while the U.S. economy sputters

Commentaries & Views

Gold continues to mount daily gains with the most recent occurrences resulting in the precious yellow metal trading to a flurry of new all-time record high closes. For the last fourteen trading days, since July 17, gold pricing has closed higher on twelve of those trading days.

One of the most impressive aspects of gold’s recent ascent occurred on July 27. This was the exact moment in time when gold futures (which opened above $1900) closed at a new all-time record high ($1930). The former all-time record high just above $1900 occurred in the middle of 2011. Gold prices have not looked back since. However even July 27’s new all-time record high was dwarfed by price action yesterday when gold prices broke above $2000 per ounce for the first time in history and closed at $2020.

Today traders and market participants took gold prices even higher. As of 4:06 PM EDT gold futures basis the most active December 2020 contract traded to an intraday high of $2070.30, and is currently fixed at $2052 per ounce. Gains since the middle of March have moved the price of an ounce of gold $650 higher.

These gains are largely the result of the Federal Reserve’s attempt to curtail the contracting economy in the United States in unison with the vast majority of central banks globally as the coronavirus pandemic continues to tear apart recent economic growth. So severe was the economic contraction that recent data indicated that the U.S. economy had contracted approximately 33% last quarter.

During the last press conference held on July 29, Jerome Powell, Chairman of the Federal Reserve said, that the Fed is committed to “using our tools to do what we can, and for as long as it takes, to provide some relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy”.

However recent data suggests that Fed actions up to this point have fallen short of its objective. ADP released the National Employment Report today and showed that private payrolls only increased by 167,000 new jobs last month. This number was 1/10 of 1.5 million jobs that economists polled by Reuters forecasted. Considering that in June ADP data reported an additional 4.314 million jobs added, today’s numbers were dismal at best.

According to Reuters, “U.S. private employers hired far fewer workers than expected in July as companies exhausted loans to help with wages and new COVID-19 infections flared up across the country, supporting the view that the nascent economic recovery was faltering.”

A faltering U.S. economy has been partially responsible for the U.S. Dollar freefalling approximately 10% since mid-March. These factors collectively have reignited the extremely bullish market sentiment for the safe haven asset class. While there is promising data indicating that a COVID -19 vaccine could be available by the end of this year or the beginning of 2021, the same guarded optimism cannot be extended to the hope for an economic recovery, as such we would expect gold to continue to gain value.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.