Gold prices have slipped from two-year highs reached earlier in August hitting a five-week low on Monday after comments from top Federal Reserve officials fuelled speculation that U.S. interest rates would rise sooner rather than later.
Speaking at a meeting of leading central bankers in Jackson Hole, Wyoming, Fed chair Janet Yellen said on Friday that an improvement in the economy and the labour market in recent months had boosted the case for hiking rates.
In the wake of Yellen’s comments the price of gold first reacted by rising as much as 1.5 percent, before slipping back to end the day marginally lower, and begin the week on a slightly softer note.
Yellen said with “continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the Federal funds rate has strengthened in recent months.” However, the Fed chief added, policymakers’ action still hinges on future economic data.
“And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course,” Yellen said. “Our ability to predict how the Federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.”
While gold is sensitive to changes in interest rates, this is not the only determining factor for the price of the yellow metal, and traders seem to be fixated on what the Fed may or may not do while totalling ignoring the other fundamental factors the will influence prices.
In the very near term, while traders continue to monitor any other comments from Fed officials they will also be focused on the monthly U.S. jobs report due out on Friday as a strong number could heighten expectations for monetary tightening, and vice-versa.
Meanwhile, according to the latest report published by the World Gold Council , it seems that investors are losing faith in the current financial system as well as being fed up with monetary policy in particular negative interest rates, and have therefore put their money into hard assets such as gold.
Investment gold demand during the first half of the year, which drove prices up 25% on the year, was the strongest seen in more than 30 years, according to the World Gold Council’s (WGC) second quarter Gold Demand Trends.
In its report recently released, the WGC noted that the investment market was driven by historical demand in exchange-traded products. The association noted that global ETF demand in the first half of 2016 totalled 579 tons, and almost matched 645 tons of ETF inflows seen for the entire year of 2009.
Investment demand was unprecedented in the first half of the year, totalling 1,064 tons. In the second quarter alone, investors bought a total of 448.40 tons of gold, an increase of 141% compared to 2015 second-quarter demand of 186.1 tons. Investor demand in the first half of the year was even larger than in 2009, when investors bought gold to as a safe-haven investment during the financial crisis.
In its report the WGC stated, “For the first time on record, investment has been the largest component of gold demand for two consecutive quarters. And this has been in no small part due to demand from Western investors across the spectrum, from retail to institutional and for bars, coins and ETFs”
Total gold demand from April to June increased to 1,050.20 tons, up 15% compared to 910.4 total demand seen in the second quarter of 2015.
As far as I am concerned, the current expansionary monetary policies of negative interest rates and loose monetary policy in general is a very good reason to own gold.
Central banks have maintained unprecedented easy money policies with close to zero rates and massive amounts of quantitative easing (QE) since 2008. Despite its total failure to stimulate economies, these banks have persisted with this policy, with the ECB expanding its negative rate regime, the Bank of Japan instituting negative rates, and the UK beginning a new round of rate lowering with the goal of getting to zero, while at the same time expanding its QE program. This liquidity has artificially pushed global stocks to new highs, as central banks inflate each stock bubble higher and higher.
While the policy of money printing persists the major fiat currencies all stand to depreciate in value and shrink their respective purchasing powers. This insane policy of negative interest rates is making government bonds terrible investments. One of the major objections to owning gold was that it pays no interest, but in today’s current environment the real return on any government bond is negative. Who in their right mind would want to pay the government or even a bank for lending them your money?
In numerous reports, I have made it clear that when you have to pay your bank to keep your money, you know something is seriously wrong. In addition, when cash is banned, then you know you are being robbed by the financial system. So, instead of paying the bank to hold your money, buy physical gold and silver.
In current times, you cannot trust your own government, and if you think your bank cares about you, think again. A bank is merely your financial partner. Don’t simply assume that it’s safe just because everyone else does. DO NOT store any physical gold, silver and cash at your bank, and reduce your exposure to the bank.
As global central bankers continue with what is surely the greatest experiment in monetary policy in the history of the world, instead of lending them a dime I would strongly suggest you put that money into gold and silver.