Gold opened the first week of August with a rise to a record. However, the precious metal retreated to trade little changed as the dollar nudged higher and the European equities turned positive.
Last month, spot gold gained 11% representing the biggest monthly gain since 2012. The surge came as investors weighed a weaker dollar and record low US real yields. Experts and strategists are now looking at alternatives to government debt including cash, credit, dividend shares, and gold. According to the RBC Capital Markets, gold seems to be a “freight train” due to haven demand.
The continuing global health crisis has pushed governments to issue unprecedented amounts of stimulus packages to shore up their economies. The current low rates are a major boon for the non-interest-yielding gold.
Growing geopolitical tensions between the US and China are also increasing demand for haven assets. The US Secretary of State Michael Pompeo said that the Trump administration will soon unleash measures against a wide array of Chinese-owned software that is deemed to pose various national-security risks. An analyst at Commonwealth Bank of Australia, Vivek Dhar, said in a note:
“The fall in U.S. 10-year real yields was the most important driver in our view given the strong inverse relationship. Haven demand primarily reflected global growth concerns linked to rising COVID 19 cases around the world and escalating U.S. China tensions.”
Spot gold gained around 0.6% to reach $1,988.40 an ounce. But, it later retreated to trade at 0.1% lower by 10:35 a.m. in London. The Futures in New York were 0.3% higher after they parred earlier gains. On its part, spot silver lost 0.2% to trade at $24.3345 an ounce after surging 34% in July.
European stocks surged after factories spread all over the Euro zone saw a stronger return to growth in July than it had been previously projected. That marked the region’s first manufacturing expansion in at least 18 months.
The pandemic is adding a million infections globally after every four days and it has now surpassed 18 million. These increasing numbers may result in more lockdowns. While the gold rally seemed to pause on Monday, August 3, 2020, even those who think that the precious metal is overvalued do not expect a significant downside momentum.
Nonetheless, a correction is likely but it might be measured against a weak dollar and persistent uncertainty in the global economy.