Hawaii Six O - Gary Wagner
Gold – is it a Deal or No Deal?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Is buying gold at this level a good deal, or no deal? Before we address the answer to that question, we have to speak about the ongoing negotiations going on at the House and Senate, as politicians today attempted to come to some common ground on the next aid bill.
At least for today it was, “No Deal”. Once again politicians who have become increasingly polarized could not find common ground to move the negotiations on Capitol Hill closer to completion on the next aid package. The sad truth is that the benefits from the “Cares Act” has been depleted, and across the United States citizens are facing extreme financial hardship.
Today’s negotiation was highly influenced by today’s jobs report from the U.S. Labor Department. Unlike Wednesday’s ADP private sector jobs report, today’s data came in well above expectations and economists’ forecast. The ADP jobs report was forecast to indicate an additional 1.5 million jobs last month, the actual number of new jobs in July was 167,000. Today’s report showed that the U.S. economy had rehired approximately 1.76 million individuals, causing the unemployment rate to drop 10.2% almost a full percentage decrease when compared to last month.
As reported in MarketWatch, Evercore ISI analysts Krishna Guha and Ernie Tedeschi wrote that, “The better-than-expected outcome will further complicate negotiations on the next fiscal stimulus package that have entered a difficult phase amid gridlock on UI, state-and-local spending and election funding and recriminations.” They also added that Republican lawmakers are “likely to perceive that the jobs report gives them some more leverage.”
The stalled negotiations and positive jobs report weighed heavily on gold investors who bid gold sharply lower in trading today. As of 5 PM EDT gold futures basis the most active December 2020 contract lost $23.30 (-1.13%) and is currently fixed at $2046.10, after trading to an intraday low of $2024.80.
Which brings us to our original question, is gold at these prices a good deal or not? Fundamentally speaking today’s positive jobs report was partially responsible for the negotiation stalemate that occurred on Capitol Hill today. It also gives the Federal Reserve a little bit more breathing room. Decisions by the Federal Reserve might be able to be more proactive, and less reactive when it comes to moving forward with additional monetary stimulus.
However, when you look at the big picture, there are still large and unresolved problems. The global pandemic continues to linger with the number of worldwide infections now exceeding 19 million individuals, and the loss of 716,735 souls.
When the global pandemic is coupled with the elevated tension between the United States and China, and the uncertainty of the outcome and consequences of the presidential election in November, it seems highly probable that the dramatic rise in gold will continue. However, there is also a reasonable probability that the selling witnessed as gold lost a little over 1% today will continue. After such a dynamic run up a correction should actually stabilize gold pricing in the long run.
It also will give those who wanted to participate in this 2020 gold rush a second opportunity to buy gold at a lower value.
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Wishing you as always, good trading,