The gold futures contract hit a seven-year high on Thursday as another week of massive unemployment benefits deposits and widespread Federal Reserve measures to strengthen the economy strengthened demand for precious metals as an investment.
The Fed announced on Thursday up to $ 2.3 trillion in additional assistance, including a commitment to boost risky areas of the financial markets that have been hit hardest by the coronavirus pandemic.
Meanwhile, the number of Americans seeking unemployment benefits has exceeded 6 million for the second consecutive week, with businesses closed across the country in an effort to stem the spread of the virus. This has brought total claims over the past three weeks to more than 16 million. According to CNBC, if you compare these claims to the 151 million people on payrolls in the latest monthly employment report, it means that the United States lost 10% of the workforce in three weeks. .
Gold reached its highest level since 2012, with investors seeking insurance against the possibility of a further economic slowdown, even though US stocks rose after the move by the Fed.
Easier monetary policy and lower borrowing costs are what make gold so attractive to invest. Gold does not pay interest like bonds or dividends like stocks. So when interest rates get closer to 0% and some companies start reducing or eliminating dividends, gold becomes a more attractive asset.
June Comex gold settled at $ 1,752.80, up $ 68.50 or + 4.07%. “data-reactid =” 24 “> June Comex gold settled at $ 1752.80, up $ 68.50 or + 4.07%.
What the experts say
“Unprecedented monetary and fiscal stimulus, negative yielding debt and low interest rates for a longer period imply that gold will continue to attract the flight to security and quality,” said Suki. Cooper, precious metals analyst at Standard Chartered Plc, in a note.
While I understand the basic reasons he sets out, I do not agree with his conclusion that investors are looking for the safety of gold. At a peak of seven years, investors are not looking for security, they are looking for a return on investment. Any market that can oscillate between 5% and 10% per day in both directions is not attractive for safety or quality reasons. Investors appreciate the upside potential and are ready to manage the risk to get it.
Rarity against Fed printing
For centuries, gold has been one of the most sought after assets due to its rarity. This factor also supported prices.
According to Bloomberg, the spread between New York futures and London spot prices is still high, a sign of continued concern about the future supply of the metal’s physical condition. As investors continue to demand gold, it is still difficult to ship bullion around the world due to restrictions related to coronaviruses. Liquidity is also relatively low in the market, which further exacerbates the price dislocation.
Meanwhile, the Fed continues to fire its presses and earn as much money as it needs to support the economy.
What do you prefer to own? Something rare or abundant? This is actually the main reason for the strength of the gold.
article was originally published on FX Empire “data-reactid =” 33 “> This article was originally published on FX Empire