Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. Gold, that perennial barometer of investor nervousness, has hit a six-year high today. Bullion jumped through $1,450 per ounce for the first time since May 2013, extending its recent gains. This means gold has now surged
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Gold, that perennial barometer of investor nervousness, has hit a six-year high today.
Bullion jumped through $1,450 per ounce for the first time since May 2013, extending its recent gains.
This means gold has now surged by 25% since last August, a sparkling run that outpaces most other assets.
The rally is being driven by several factors. One is that America’s central bank seems certain to cut interest rates later this month. That would be inflationary — and gold is seen as a store of value in such times.
There’s even chatter that the Federal Reserve could slash borrowing costs by half a percentage point, rather than the typical quarter-point cut.
John Williams, the vice chairman of the Fed’s policy-setting board, raised these rate cut hopes on Thursday when he said policymakers need to be pro-active, rather than waiting for a disaster to unfold.
Comparing monetary policy to vaccination, Williams said:
It’s better to deal with the short-term pain of a shot than to take the risk that they’ll contract a disease later on.”
Gold’s popularity also comes as government bond prices surge to record highs. Many are now trading with negative yields, meaning investors are guaranteed to lose money if they hold the debt until it matures. Gold doesn’t pay a dividend or a coupon, but can still deliver a profit if prices keep rising.
Gold is also popular when geopolitical tensions escalate. The news that America says it has shot down an Iranian drone over the Strait of Hormuz yesterday (which Tehran denies) has worried investors, given recent attacks on oil tankers in the Gulf region.
Nicholas Frappell, global general manager at ABC Bullion, says gold was further lifted by Iran announcing the capture of a foreign oil-smuggling tanker in the Gulf:
“The extra push for gold prices came from comments by NY Fed President John Williams which implied quite aggressive rate-cutting, plus the Iranian drone news and the seizure of a tanker by the Iranians in the Straits of Hormuz.”
More to follow…
Also coming up today
We learn how much Britain borrowed to balance the books last month, plus get a new gauge on American consumer confidence.
- 9.30am BST: UK public finances for June (£3.9bn deficit expected)
- 3pm BST: University of Michigan’s survey of US consumer confidence