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Gold Market Remains Non-Reactive to Negative News on the Economy

7 May 2018 No Comment

The Institute for Supply Management (ISM) announced yesterday that its manufacturing index revealed a 56.8% reading for April, down from March’s reading of 58.8%. The data was lower than the expected reading of 58.1% for May. Despite the disappointing figures, gold prices rose against all major currencies, to over $1,315 per ounce, after the US Federal Reserve’s decision to maintain the current interest rate. Gold investment also made the news thanks to major investments made by billionaire Naguib Sawiris.

Inflation Continues to Grow in the US

Data from Market Watch indicates that inflation has jumped yet again while labor and supply shortages are worsening. American manufacturing grew at a slow pace in April, owing to inflated prices (“the highest since 2011”) for crucial materials such as steel. The labor market has also seen considerable tightening in the past few months. Last month, the manufacturing index was two full points lower than in December 2017.

The US is Closer to an Economic Peak

BN Capital’s Leo Nelissen warns that the slowing in growth coupled with the likelihood that we are getting close to an economic peak, indicates that the US is likely to experience weakening across the board, from new orders right through to production, employment, supplier deliveries, inventories, order backlogs, new export orders, and imports. He sums up the problem as follows: “What we are dealing with is economic growth at rock solid levels. The only problem is that we are seeing an economic peak. In other words, economic expectations are falling. And this is bad regardless whether we are at record sentiment levels or very low levels.”

An Interest in Gold Investment

Although gold prices have remained low over a four-month period, investment in silver, gold, and other precious metals continues to be attractive to investors such as multi-billionaire Naguib Sawiris, who invested half his fortune in gold, hitting the headlines in most of the world’s financial publications yesterday. In an interview with Bloomberg, the investor, whose net worth stands at $5.7 billion, said he sees gold hitting $1,800 per ounce, while the “overvalued stock market” hasn’t fared nearly so well. He stated that gold was a good idea during times of crises, and added: “We are full of crises right now.”

A Traditionally Safe Investment

Sawiris’ comments about gold are certainly backed up by the commodity’s history and reputation for holding its value from generation to generation. Dollar value falls tend to inspire an interest in the safety of gold, which has always been an excellent hedge against inflation. Gold also holds its own against deflation, and is considered more resistant to issues such as geopolitical insecurity. In fact, Sawiris made it a point to mention the situation in the Middle East “and the rest of the world” when discussing his decision to go for gold.

With gold prices rising against all major currencies and the combination of rising interest rates and stock market volatility, gold is looking like an interesting avenue for investment. Although demand has fallen since the first quarter of 2017, the recent rise of gold prices suggests that buyers are seeing precious metals as a relatively safe bet during a time of geopolitical uncertainty.

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