Gold’s June upturn separates 2019 from the pack

Gold’s June upturn separates 2019 from the pack by Michael J. Kosares for USA Gold

Summer doldrums turned upside down

“There has been a dramatic change in sentiment.” – Adrian Day

The summer months historically present a buying opportunity in precious metals as illustrated in the charts shown below. In the past, there has been a clear change of direction in sentiment annually from the 185-195 day mark – midway in the year. So far this summer, though, gold has broken with tradition by turning in a strong June, as shown in the third chart.

“Gold trading usually gives pundits, dealers, and investors a break at some point over the summer,” observes Adrian Ash at BullionVault. “But like 2007, 2008, 2009, 2011 and 2016…this year is proving no time to take your eye off the market. And if 2019 is going to see an old skool summer lull in gold trading, it won’t feel much like a discount up at these prices.” With a range of economic and geopolitical issues preying on investor psychology – particularly at the funds and institutions that have fueled the upside this year – the summer of 2019 might go down as one of those years when we bypass the annual slowdown. Last year, gold hit a low of $1178 in mid-August. By December 31st, it was trading at the $1280 mark.

Charts courtesy of GoldChartsRUs/Nick Laird

‘Expect markets to keep singing gold praises’

A quick run-down on gold’s performance in a select group of currencies over the past twelve months as of the end of June, tells the story of rapidly evolving change in attitude among global investors.  Over the past year, gold is up 15.7% in euros, 17.1% in Chinese yuan, 10.2% in Japanese yen, 13.6% in Indian rupee and 16.3% in the yuan.  For comparison purposes, gold is up 12.8% in the U.S. dollar.

That change in attitude extends beyond the citizenry to central banks pursuing gold acquisition policies of their own. “Net buying by central banks,” reports the World Gold Council in Gold Demand Trends, “reached 145.5 tonnes in Q1, 68% higher y-o-y. This is the highest volume of Q1 net purchases since 2013 (179.1 tonnes), comfortably exceeding the five-year quarterly average of 129.2 tonnes. On a rolling four-quarter basis, demand reached a record high for our data series of 715.7 tonnes.”

“These days,” says Financial Times’ Lex columnist, “it is not dollars that emerging countries feel they have to hold. They want gold, and plenty of it. Since the first quarter of 2015, central banks in China, Russia, India and Turkey have boosted their gold holdings by two-thirds to 4,960 tonnes. Diplomatic and trade rows with the US explain some of this buying. There is a move to avoid buying dollars for their foreign exchange reserves. . . US interest rates are probably headed down. That move should depress the dollar against other currencies. Expect markets to keep singing gold’s praises.”
Chart courtesy of World Gold Council

Trump dollar devaluation could send gold back to record highs

“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!” – Donald Trump

The President is many things to many people, but the one thing he is not is naive enough to allow his adversaries to use currency depreciation as a means to circumvent the sting of tariffs. He would rather fight fire with fire through a devaluation of the dollar. For that to occur, though, he will need the co-operation of the Fed – hence the heavy pressure for easy money policies.

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