Jerome Powell is slated to speak in front of the Senate Banking Committee today as many precious metal investors wonder what’s next. Gold futures have plummeted 7% as treasury yields and the dollar strengthen.
Earlier in the pandemic, it seemed like inflation was inevitable. Safe haven investments like gold saw huge bounces. Gold hit $2000 in August 2020 and seemed to have nowhere to go but up. But then it just held steady, even though it seemed like the big rally could happen at any minute. This summer, gold has started to fade.
The recent rise in the benchmark 10-year Treasury note yield to 1.5%, tighter monetary policy, and a 0.2% bump in the U.S. Dollar have weakened the yellow metal to $1,733.60. “Gold held up surprisingly well but is unlikely to come out unscathed from an environment of rising real rates and a yield-powered dollar,” wrote senior investment analyst Marios Hadjikyriacos in a research note.
Gold May Still Find Its Shine
It is easy to forget in all of the noise that U.S. CPI rates have remained alarming, with June and July both seeing 5.4% increases. In Europe, PPI rose 10.2% year-over-year. Government spending is up by the equivalent of 13% of global GDP.
Gold may very well be a value buy at the moment and could see a second big pandemic surge in price if inflation proves sticky and not transitory.
“This concern about more persistent inflation also appears to be becoming a much more consistent theme of central bankers’ discourse, with a number of Fed speakers yesterday coming across a little more forcefully when it comes to the start of tapering,” said Michael Hewson, CMC Markets UK’s chief market analyst, in an interview with CNBC.
As market volatility and uncertainty abounds, gold remains a crucial safe haven asset. Many renowned investors have been bullish on gold despite its summer slump. Sprott offers 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).
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