Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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Gold successfully completed a six-day rally yesterday, breaking through $3,500 an ounce with absolutely no resistance. The precious metal continued to push higher still this morning in the Asian session, pushing as high as $3,547 at one point. Silver meanwhile came within touching distance of $41 earlier today. September has historically been the worst month for US stock performance and as superstitious as Wall Street can be, it is little wonder that traders are looking for other avenues of investment. Late summer woes are only one part of the explanation however, as a number of factors are contributing to the thunderous rise in gold.
First and foremost is the expectation that the Federal Reserve will lower rates on the Dollar during the next FOMC meeting, scheduled a mere two weeks from today. In the eyes of many, the current economic climate in the US more than justifies a 25-bps cut, which raises the question: is a bigger cut in play? This week will provide a number of data points on the US labour market, not least the latest non-farm payroll report on Friday. If the numbers are bad, it is possible the Fed will be forced to lower rates more than expected to spark some life into the American economy.
More generally, a growing sense of uncertainty is beginning to pervade global markets. Foreign central banks are now holding more gold than US treasuries, something that has not happened since the 1990s. Nations around the world have been shoring up their gold reserves all year and are showing no signs of letting up. The problems are not limited to a lack of confidence in the Dollar, although that is certainly part of it. The bigger issue is the lack of confidence in fiat currencies in general.
Bond yields around the world are on the rise. Euro bond yields have recently climbed to multi-year highs, while yields on 30-year UK gilts are at their highest since 1998. Yields on 30-year US treasuries meanwhile are a hair’s breadth under 5%. High yields mean low prices, which means investors are selling. The reasons why remain unclear but there are two problems two consider. Firstly, the sell-off points to a lack of confidence in government debt. Secondly, if such high yields are available to investors, it puts into question the current high valuations in stocks. If investors can get a safe 5% from bonds, why bother with a volatile stock market?
It is worth asking how crypto fits into the picture. Bitcoin enjoyed fresh record highs in August but has recently come down to more modest levels. A rate cut on the Dollar will certainly make crypto more appealing, but the bigger question is whether or not the world of digital currencies will ever act as a safe haven in the same way that precious metals do. It is interesting that Bitcoin rose in tandem with gold and silver yesterday, although the correlation is by no means established.
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