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All That Glitters Is Not Gold?


A much-heralded safe haven asset, Gold flourished during the pandemic, edging to over 2070 dollars per ounce in mid-to-late summer 2020. This represents a 40% spike in price since December 2019, when a new coronavirus was first discovered. Panic, uncertainty, high unemployment and total economic shutdown had investors scrambling to find a suitable asset for managing risk.

Since, the metal has been out of favour, as the roll out of vaccination programs in major economies provided some optimism that the global economy had ‘turned a corner,’ with respect to the virus and its devastating effects. In the shorter-term, volatility has reigned as the virulent delta variant has stalled full economic recoveries and spurred another round of national lockdowns.

From a technical perspective, sentiment has recently swung into bullish territory with price action climbing above both the 200- and 50-day moving averages.
The macroeconomic perspective is also laying the ground for further support for the commodity. A recent address at the Jackson Hole Symposium by Federal Reserve Chairman Powell, highlighted the committee’s intention to taper its pandemic bond purchasing program, most likely in late 2021. Additionally, the committee dismissed the notion of a potential rise in interest rates which currently remain at historically low levels, setting up a backdrop of a weakening dollar; at least in the medium term. The result was a moderate spike in Gold prices. Bullion futures for December delivery also saw increased interest on the Comex, representing the largest spike in recent weeks.

The Non-Farm Payroll report is due later this week, with inflation sitting at the Fed’s targeted rate. Any outperformance in the labour market will turn demand away from precious metals and back towards the greenback. Falling unemployment claims and further reopening will fuel hiring in the services sector, signaling that a surprise may be in store and that Gold buyers’ hopes may well be tarnished.

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