August Off To Shaky Start For Gold. Could September Change Anything?
Sunshine Profits | Aug 12, 2021 11:26AM ET
The World Gold Council believes that gold will shine in September. Given the whole context, I’m not so sure. In fact, I am not sure at all.
Following three previous reports, the gold ETFs in Q2 and also in July, but they only partially offset the huge outflows of the previous quarter. Hence, investors’ sentiment turned more positive in the second quarter, which helped gold prices rebound somewhat after Q1.
Indeed, as the chart below shows, the price of gold plunged 10% in Q1 2021. Then, it rebounded 4.3% in the second quarter, but it was not enough to offset the blow from the first three months of the year. In July, the price of gold jumped 3.6%, although it retraced most of that increase in August (it decreased 2.1% in a single day – Aug. 6). So, gold prices declined more than 6% year-to-date.
Unfortunately, there is potential for further declines. After strong July’s nonfarm payrolls, the Fed has no excuses not to start tapering of its quantitative easing . What’s more, the current levels of the real interest rates are very low, so they are likely to normalize somewhat later this year.
The second WGC publication is the newest edition of the Gold Market Commentary entitled . The main thesis of the article is that “August could be the opportune time to position for the historically strong September gold performance.” Well, given last week’s plunge in gold prices, this suggestion looks rather amusing, but who knows? There is plenty of time until September, which is historically quite positive for gold.
The justification for this thesis is twofold. First, central banks focus now more on employment than real interest rates and create downward pressure on gold prices.
Second, the bond yields higher and strengthen the dollar, sending the price of the yellow metal down in the short-to-medium term.
Luckily, an abrupt recession or inflation running out of control could make gold shine again. After all, inflation is well above the Fed’s target, while the real yields will likely remain negative for a long period. These factors should provide support for gold over a longer horizon, but investors shouldn’t downplay the upcoming tightening cycle and rising interest rates.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.