01 June 2021

Gold Starts June With A Bang

Gold jumped $10/oz during the first trading day of June, reaching a near 5-month high of $1,916/oz, before settling just above the $1,900 mark.

The U.S Dollar remains around January 2021 lows, with the Dollar Index at 89.8 – down 12% from its March 2020 high. As a result of the sustained Dollar weakness, U.S Treasury bonds have similarly taken a hit, with yields having spiked 113% in the same period – from 0.76% to 1.62% today.

The main drivers for the above shifts have come from the stimulus and liquidity measures (read: money printing) by global central banks, in an effort to mitigate the negative impact of locking down societies via governmental decrees. As more and more citizens have started receiving experimental Covid vaccines, governments have started to loosen up restrictions, and hence economic activity and financial transactions have increased.

Although economic output is therefore increasing, real output levels won’t return to 2019 levels within the next 3 to 5 years – but off of this current low base, economies have once again started growing. With all this now excess printed money circulating, and because of the historic size of the increase in new money, the fear of massive inflation has been what’s  driven markets this year… the world is closely watching price increases, and the rate of economic growth.

“The inflation outlook is a risk because it is so unknown at the moment, and it will take a number of months to really get a true idea of whether we will see that inflation be persistently higher or not,” Kerry Craig, JPMorgan Asset Management global market strategist, said on Bloomberg TV this week.

On one side, the U.S Fed is downplaying the risk of inflation, whereas market participants and investors are betting otherwise – shifting out of Dollars and U.S bonds, into gold and alternative monies like crypto. This week, markets will be looking for clues on the recovery rate of global economies in U.S jobs and Covid infections data.

As for gold owners, they’re enjoying the show from the comfort of their safe haven – the yellow metal was last seen trading at $,1908/oz.

Jaco Lups