Gold is hitting its stride
(Kitco News) - According to many analysts, financial markets have entered a goldilocks environment where conditions are neither too hot nor too cold. This, it turns out, is also the perfect environment for the gold market.
The goldilocks conditions were confirmed Friday when the U.S. Labor Department reported that 559,000 jobs were created in May. The numbers, while impressive, were still disappointing as economists were expecting to see gains of around 645,000 jobs. At the same time, wages increased 0.5%.
To put the latest jobs numbers into perspective, according to economists at Capital Economics, at the current pace of job growth, it would take more than a year for the labor market to reach its pre-pandemic level.
So inflation pressures are rising, but labor market weakness will force the Federal Reserve to maintain its ultra-loose monetary policies for at least the rest of the year if not for the next 12 months.
Of course, some analysts are expecting that the Federal Reserve and other central banks will be holding the dovish line for a lot longer than a year. In a report from European precious metals firm Degussa, the analysts said that governments have become addicted to cheap debt. And as they continue to spend, it will be more difficult for central banks to tighten interest rates.
The analysts noted that sovereign debt increased to $289 trillion in the first quarter of 2021. That represents 360% of global GDP.
Of course, not all analysts are bullish on gold as the market is starting to look a little overbought and momentum indicators are stretched. Market analysts at Capital Economics warned that May could be as good as it gets for gold and silver.
"The recent rise in the gold price has been far larger than is implied by the fall in real yields, and we think that the gold price will come under renewed downward pressure in the months ahead as real yields start to creep higher," the analysts said.
Finally, I wanted to point out one more article from our intrepid reporter Anna Golubova. She covered Goldman Sachs' Jeff Currie comments that said that Bitcoin should be considered digital copper and not digital gold.
"Bitcoin substitutes against risk-on inflation hedges, not risk-off inflation hedges. Another way to say it, there is good inflation, and there is bad inflation. Good inflation is when demand pulls it. That's what bitcoin, copper and oil hedge. Gold hedges bad inflation where supply is being curtailed," Currie said in an interview with CNBC.
That is it for this week.
Have a great weekend.