Miners Remain Undervalued Despite Gold’s Run
Miners Remain Undervalued Despite Gold’s Run By Joe Foster, for ETF Trends
Gold Reaches Another All-Time High
The strong gains of July carried on to early August. Gold reached an all-time high of $2,070 per ounce on August 6 amid U.S. dollar weakness and new lows in treasury yields. Gold then saw a sharp reversal and fell $207 over the following three trading days to an intraday low of $1,863 on August 12. The reversal was triggered by dollar strength, a move higher in interest rates and news of a Russian COVID vaccine. Gold had become over-bought in the past month, trading well above-trend, making it ripe for a correction. Once gold started to fall, momentum built as profit-taking set in and bullion exchange traded products saw their first redemptions since June. Gold recovered quickly and spent the rest of the month consolidating between $1,900 and $2,000 per ounce as the U.S. Dollar Index (DXY)1 made new two-year lows on August 31. Spot gold ended the month at $1,967.80 for an $8.06 (0.4%) loss.
Fed Shifts Inflation Target
U.S. Federal Reserve (Fed) Chairman Powell announced a significant shift in inflation targeting that will allow inflation to rise above the 2% target that the Fed has been trying to achieve for years. Aside from some volatility, gold did not react significantly to the announcement, as it has little bearing in the current markets. Pandemic-related deflation is the dominant economic force and it looks to be here for a while. An August 7 study by the Aspen Institute finds that without intervention, as many as 17 million U.S. households (40 million people) risk eviction by year-end. An August 29 Wall Street Journal article details a new wave of layoffs washing over the U.S., reflecting a shift in corporate thinking toward a more protracted crisis. New York is being transformed into a second-tier city mired in budget shortfalls and rising gun violence. The New York Times figures one-third of New York’s small businesses may be gone forever.