News about Evergrande’s possible default on Monday created a ripple of uncertainty, pushing investors toward gold. Gold had a second day of solid gains Tuesday as a two-day Fed meeting commenced and investors began anticipating policy and interest rate projections.
“The potential for a financial contagion inside China, ongoing infection issues in China, significant global equity market declines and the potential for significant Chinese stimulus provide the gold bulls with plenty of ammunition,” analysts at Zaner said yesterday.
Increased trading activity on Tuesday means that investor anxiety regarding Evergrande has at least partially subsided, but precious metal demand continues to rise. Safe haven assets, such as gold, thrive when the market fortunes are murky, and even if Evergrande doesn’t end up being a “Lehman moment,” it still underscores the fundamental uncertainty of these times.
Fed Policy Decisions Loom Large Today
Recent U.S. economic data has been strong, which has put gold under pressure in recent weeks as investors started anticipating the Fed tapering its monthly purchases of mortgage-backed securities.
“For gold traders, the direction of the dollar is going to be just as important as the equity markets. To this end, the U.S. currency might perform mixed until at least the FOMC day on Wednesday,” wrote Fawad Razaqzada, market analyst at ThinkMarkets. Razaqzada continued, “If the stock market selling returns, this might reduce the prospect of central banks reducing stimulus in the coming months. This should lead to lower yields and potentially a stronger gold price.”
Other Precious Metals Also Seeing a Surge
Silver saw a 41-cent bump on Tuesday, putting it back to $22.61. Platinum and palladium are also climbing, with platinum up 5.7% and palladium up 1.6%.
“The combination of mounting growth risks, concerns about central bank tightening, and the chip shortage are combining to dim the demand picture for both platinum and palladium,” wrote Peter Grant in Zaner’s latest Grant on Gold newsletter.
Sprott also offers two actively managed precious metals mining ETFs: the Sprott Gold Miners ETF (SGDM), which tracks gold majors, and the Sprott Junior Gold Miners ETF (SGDJ), which tracks junior gold miners. Investors can get exposure to physical gold bullion through the Sprott Physical Gold Trust (PHYS) and to silver through the Sprott Physical Silver Trust (PSLV).
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