Gold had a rough end to Friday, but it appears to be rebounding on Monday morning.
“When it comes to the gold price, traders are focused on the strength or the weakness of the dollar index, which is very much dependent on two elements. Firstly, the US economic numbers, and secondly, the Fed’s monetary policy stance. Although Friday’s number was better than expected, but it wasn’t exactly thriving,” Naeem Aslam, chief market analyst at AvaTrade, said.
On Friday, an upbeat labor report lifted the dollar and Treasury yields, which in turn weighed down gold. The yellow metal has been supported by continued strength in oil prices, which cause fears about energy cost-driven inflation, making gold’s case as an inflation hedge stronger.
Physical demand for gold is soaring. The U.S. Mint reported that it sold 147,000 ounces of gold last month, its best May performance since 2010. Despite surging demand, gold futures prices have remained muted, in part because of the strength of U.S. dollar as the Fed raises rates. Demand for physical gold indicates investor anxiety as many prepare for a recession.
Earlier last week, JPMorgan Chase CEO Jamie Dimon warned investors to ready themselves for an economic hurricane. “That hurricane is right out there down the road coming our way,” Dimon said at a conference last Wednesday. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”
Investor anxiety doesn’t necessarily indicate that the U.S. is on an unavoidable course to a full-blown recession, and many analysts think that a recession can be avoided.
Still, it could be worth kicking the tires on gold and gold miners to prepare your portfolio for the worst.
Investors can get exposure to physical gold through the Sprott Physical Gold Trust (PHYS). For a gold equities play, investors can look at the Sprott Gold Miners ETF (SGDM) or the Sprott Junior Gold Miners ETF (SGDJ).
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