Gold is a winner again today, up $67 to $4434 and just edging above the weekly high set yesterday.
There has been a remarkable resurgence in gold since August 5 as it’s gained nearly 10% since on a series of strong days. Helping it has been softer US economic data, including Friday’s non-farm payrolls report. In addition, today’s CPI report underscored that there is no rush for the Fed to hike rates. The numbers were in-line with estimates and that’s led to broad, modest USD selling. Gold touched a session high of $4440 moments after the report landed.
Another factor dricing the gold bid has been US intervention in the yen market in order to weaken the dollar. There are all kinds of rumors about Treasury selling and Bessent stepping in to fight that but on the face of it, the idea that the US wants the dollar weaker and is actively intervening to make that happen is undoubtedly bullish.
On the war front, I think peace would be the best outcome for gold but it’s increasingly clear that the US finds itself in a quagmire with no clear path out. The problem for gold is that it could mean a fresh spike in oil prices once strategic reserves are drawn down. In the Q2 Saudi Aramco conference call, the company highlighted a troubling dynamic.
“Global oil demand has remained resilient as the supply shock was masked by an estimated 9 million barrels per day of strategic petroleum reserves and commercial inventory withdrawals and around 2 million barrels per day in demand management.”
The problem is that if oil prices rise materially from here, there could be fresh pressures to sell gold reserves to stabilize currencies or fund imports.
Finally, this week the Trump administration floated a capital gains tax cut, likely via indexation. Such a move might be politically popular but if enacted it would punch yet-another hole in the deficit and highlight that no one in Washington is serious about growing government debt.
All told, the long-term case for gold remains as powerful as ever. It’s a long road back to all time highs near $5500 but the next barrier is $4500 and that’s worth keeping in mind.
This article was written by Adam Button at investinglive.com.
