Welcome to SurvivalBlog’s Precious Metals Month in Review, where we take a look at “the month that was” in precious metals. Each month, we cover gold’s performance, and the factors that affected gold prices.
What Did Gold Do in July?
I hope that nobody followed that old saying “Sell in May and go away,” because gold had a very, very good month in July. Both gold futures and spot gold repeatedly shattered all-time record prices in the last half of the month.
Gold built on the base formed at $1,800/oz to start the second week of July. After about July 20th, the yellow metal began to pick up steam. Amid a rally that lasted for 9 consecutive trading sessions, the gold price jumped $40 per ounce on July 27th to new nominal all-time highs.
Finally, we got some consolidation just before month-end. There was a significant pullback from gold’s highs around $1,980 per ounce on Thursday, July 30th. A sell-off in global equity markets that session prompted investors to liquidate long gold positions to cover margin calls from stock losses. Another reason for the big drop was the fact that weekly and monthly options both expired that day.
Silver hit 7-year high during the last week of July before giving back some of the gains. Nonetheless, the silver price has virtually doubled from its March lows around $12/oz to above $24/oz to close out the month.
Factors Affecting Gold This Month
CHINA–US RELATIONS SOUR
The closing of consulates between the United States and China, as well as new international sanctions against Beijing, are continuing to upend the world economy and global trade relationships.
It’s not just a struggle between these two world powers, either. Tensions have ramped up between China and its other neighbors: India moved 35,000 more troops to the disputed border with China in the HImalayas. China has moved tanks and artillery into the region, as it tries to seize more territory to widen a corridor to Kashmir and Pakistan.
FED & REAL INTEREST RATES
One major tailwind for gold is negative real interest rates. Investopedia defines real interest rates as “Real Interest Rate = Nominal Interest Rate – Inflation (Expected or Actual)”.
In a note circulated before the new highs, Commonwealth Bank of Australia’s Vivek Dhar said the fall in U.S. 10-year real yields has been the “most important driver.”
A handy sign for real interest rates is the 10-year TIPS bond. So long as this key rate remains in negative territory, gold looks attractive as a safe haven with its 0% yield compared to Treasury bonds that actually offer a negative real yield.
US DOLLAR
The DXY dollar index spent a good part of July hitting successive two-year lows. This helped gold buyers not just in the US, but in most foreign buyers as well. Since gold is priced in US dollars, a weaker dollar means it takes less of a foreign currency to buy gold in foreign markets.
Weakness in the dollar has been in part due to the fractured response to the COVID recession from Congress, compared to other nations. Ironically, it’s also in part because of good news on progress on a COVID vaccine, which reduces the safe-haven appeal of the USD.Continue reading“July 2020 in Precious Metals, by Steven Cochran”