Gold futures edged to a new contract high and spot gold moved to a new all-time high on Friday with both headed for their biggest monthly gain in 8-1/2 years as the impact of the worsening coronavirus pandemic on the U.S. economy hammered the dollar, prompting foreign investors to buy dollar-denominated gold.
At 11:25 GMT, December Comex gold is trading $1991.90, up $25.10 or +1.28%.
The primary driver of this month’s rally in gold has been the plunge in U.S. Treasury yields. Prices are also being influenced by a steep drop in the U.S. Dollar Index. Falling interest rates and a stronger Euro are combining to keep the downside pressure on the greenback.
The catalysts moving multiple markets in July were expectations of more fiscal and monetary stimulus. However, the fiscal stimulus is still hung up in Congress and the Federal Reserve is not likely to make a major move until September. Nonetheless, the bets are in that the government and the Fed will get it done.
Meanwhile, the economic data remains gloomy; putting the V-shaped recovery very much at risk and gold is seeing the benefit from that. U.S. data showed the deepest economic contraction in at least 73 years in the second quarter and weekly unemployment claims continued to rise. The dollar was also hurt by President Donald Trump raising the possibility of delaying the November presidential election.
In other news, money managers allocated $3.9 billion into gold, the second largest weekly inflow ever, Bank of America said on Friday.
We expect the short-term to be shaky because traders are going to be a little more cautious as prices straddle the $2000 level. Longer-term investors can just sit back and relax because favorable conditions are likely to prevail until there is a successful coronavirus vaccine. Meanwhile, the inability to contain the spread of COVID-19 is likely to continue to stoke the bullish flames.
For a look at all of today’s economic events, check out our economic calendar.