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Gold traded just off 7-yr highs Thursday as investors bet the precious Yellow metal price would swell as the COVID-19 chaos reshapes financial markets.
Futures for June delivery inched up 0.3% to 1,746 oz, holding just below their April high of 1,768.
Gold is up 16% YTD, thanks to investors who view it as a relatively safe asset while the USD weakens on extraordinary government efforts to insulate the economy from the coronavirus.
“The Fed is pursuing such an accommodative posture that money supply is rising at over 20% annual rate,” the chief economist and strategist at Toronto-based Rosenberg Research said on TV early Friday. “Gold supply in any given year is rising at roughly a 1% rate, and we ultimately price gold in dollars.”
The Fed took unprecedented action to support the US economy as states across the country issued “stay-at-home” orders to slow the spread of COVID-19, forcing the closure of many businesses and the cancellation of non-essential travel.
The central bank slashed interest rates to nearly Zero, an action that typically devalues the USD, launched lending facilities to support the financial system and announced plans for unlimited purchases of Treasury securities. As a result, the central bank’s balance sheet has expanded by 50% over the past month to $6-T.
“What gold is telling us, is that down the road, past June, they’re looking for inflation,” the managing director at RBC Global Wealth Management and a member of the COMEX board of directors said in an interview on TV.
Agriculture exports have been dramatically reduced because of the COVID-19 chaos, but expect a supply crunch next year as the US ships $6-B of those goods to China.
Eggs and OJ are among the goods whose prices have already started to climb and that consumers will “see tremendous inflation at supermarkets” over the next year.
For 3 wks, the gold market experienced backwardation, or prices for delivery in the short term being higher than in the longer term. The discrepancy, which is an indication there is going to be strong demand, occurred as the London Metals Exchange suffered transportation issues due to COVID-19 and was unable to coordinate delivery.
That pricing issue has reversed due to the “introduction of a new multi-delivery COMEX contract” and the “addition of 12-M oz into COMEX warehouses,” demand will continue to build as inflation comes on down the road.
“As we keep going down the road, we’re going to see more volatility but higher highs“, the near-term target is 1,800 and the precious Yellow metal could take out it’s all-time high during 1-H of Y 2021 or sooner. Front-month gold futures, or those for delivery in the current month, hit a record 1,888.70 on 22 August 2011.
Have a healthy weekend, Keep the Faith!