A Historical Comparison and Insights on Economic Trends
Price of Gold has surged to an all-time-high, pushed by the expected decision of lowering interest rates by the FED and an appetite for safe-haven assets.
On Friday both Gold futures and spot prices broke the record as central banks seem to be committed to cut rates for the remainder of this year.
Spot Gold price exceeded $2,500 (€2,264) and futures went above $2,540 on the last trading day. Excitement continues into this week’s Monday session.
Futures have risen by 5% over the past 3 months and an unprecedented 22% year-to-date. Meanwhile growth-driven commodities like copper have dropped significantly. This divergence suggests investors are fearful over slowing global manufacturing and economics, they therefore are flocking to safe-haven assets.
Interesting comparison
- Did you know that more steel is poured in an hour than the total amount Gold that has been mined in all of history?
- The world produces as much copper in a year as the total Gold ever mined.
Macroeconomic forces and escalating geopolitical tension drives this surge. Central Banks will probably ease monetary policies due to slowing economic growth. Gold inversely correlates with USD. Rate cuts weakens USD. You do the math.
Declining US Housing Market might have been the catalyst to Friday’s Gold rush. U.S. Home prices posted a 5.9% annual gain for May, down from a 6.4% annualized gain in April. This annual gain marks a slowdown. In addition, it further solidifies the likelihood of the FED initiating rate cuts.
In 2008, the US housing market crash triggered a global financial crisis, sending Gold prices to the moon, similar to today’s concerns. Like Mark Twain says: “History doesn’t repeat itself, but it often rhymes.”
Last week, the US and the UK reported cooler-than -expected inflation data for July which is a sign for potential lowering of interest rates. The reserve bank of New Zealand surprised markets by delivering its first rate cut since the pandemic with more rate cuts likely on the horizon.
Lastly and most importantly, fear of a full-blown war in the Middle East and Ukraine going on the offensive against Russia have also added demand for Gold as a safe haven.
