Spot gold hit a six-year high late last week. It is the first time since April 2013 prices soared so high – peaking at a value of $1,5334.31 an ounce. Due to this price bump, US gold futures rose by roughly 1.3% to $1,537 an ounce. Despite the positive momentum, these high levels could not be sustained over the weekend.
Several factors drive the current and future value of gold and silver. Weakness in the Argentine Peso, civil unrest in Hong Kong, and the US-China trade war has forced investors to seek safehaven.
The Argentine peso lost 15% of its value against the dollar early last week, and rating agency Fitch downgraded the nation.
“The primary election results point to heightened risks of policy discontinuity following the October 2019 general elections,” Fitch wrote. “This has prompted a collapse in market sentiment, including a sharp depreciation in the peso and widening of sovereign debt spreads, which poses a major setback to macroeconomic stabilisation efforts and sovereign financing conditions.”
The ratings agency added: “These adverse developments could impair the sovereign’s liquidity position in the near term and amplify debt sustainability risks.”
Argentina’s economy minister resigned amid the uncertainty over the peso. “I believe my resignation is in keeping with my place in a government that listens to the people and acts accordingly,” he wrote.
This leads people to believe interventionist government policies may be reintroduced. The country’s proponent of free markets, current President Mauricio Macri, is not doing too well in the current elections.
On the other side of the globe, the Japanese Yen has risen to a seven-month high against the dollar. Furthermore, the US 30-year bond yields hit their lowest levels since July 2016.
Over the years, a connection between debt yields and bullion has become apparent. As negative debt yields are now becoming a global problem, there is a desire to invest in safe havens like gold and silver. Bullion, particularly non-interest-bearing gold, usually rises in value as a result.
To some surprise, the price of silver is following a similar curve. A 2% gain pushed the value to $17.4 an ounce last week. For silver, this is the highest value since January 2018. Both platinum and palladium have noted small increments in value as well, although those metals are seen as having value for industrial purposes, not investment purposes like gold and silver.
A similar trend affects the silver price. A $0.17 retrace has driven the value below $17 again. Both gold and silver markets show signs of improving, albeit possibly temporarily.
Commenting on this situation, Sharps Pixley’s Ross Norman states: “Gold did the heavy lifting by breaching the 6 year resistance at $1,360, but it was silver’s intransigence that worried. Rather like the vapours emanating from the Temple of Apollo at the oracle in ancient Delphi, silver’s price action now portends well for gold. The gold/silver ratio has fallen from 95 to 87 and if you like gold you should positively love silver as there is scope for a further correction.”
Several hedge funds have cut their long positions by up to 10%. This can explain why precious metals markets sit at a lower value compared to last week.
Additionally, gold prices in the UAE show signs of weakness. The US Dollar Index – or DXY – shows signs of improvement. In layman’s terms, this means the US Dollar is gaining value compared to foreign currencies. A strengthening dollar can trigger lower prices for all precious metals.
Most of the stock markets are showing signs of improvement, as well. The FTSE 100, DAX , and Dow Jones all note gains of 1% or higher. Similar uptrends can be found around the globe. Looking at the NIKKEI 225, TSX, ASX 200 and DE30EUR, the uptrend is visible as well. All of this momentum hints at how investor confidence in these riskier markets is on the rise.