We love gold. We wear it on our wrists, around our necks and put it on our fingers either as bling-bling or as a sign that we are locked down. That aside, there are bigger uses of gold. Rich people mostly use it as a store of value and hedge against inflation due to the fact that its price appreciate more than it depreciates
Speaking of appreciation, this precious metal is headed for an even bigger price per ounce, if what is currently happening on the gold market is to go by. On Wednesday, May 26, 2021, gold futures were on track to register the largest monthly gain since July 2020, just a day after breaking the key $1,900 mark for the first time in almost five months. This is partly attributed to gold finding support on the back of declines in the U.S. dollar and Treasury yields.
Kevin Rich, the global gold market adviser for The Perth Mint said that after testing support in Q1 FY2021 in the mid $1,700s, gold’s move above $1,900 is significant, adding that it’s an “important technical and psychological level.”
The most-active June gold futures contract GCM21, topped $1,900 an ounce in electronic trading late Tuesday. In Wednesday dealings, the contract was up $4.40 (0.2%) at $1,902.40 an ounce on Comex. The August contract GCQ21 which also among the most active, traded at $1,906.10, up to $5.60 (0.3%).
According to data from FactSet, this current climb has pulled prices higher year to date, above the December 31 most-active contract settlement of $1,895.10. For the month, prices traded around 7.7% higher, which would mark the biggest monthly percentage rise since July 2020.
“Gold has recently been benefiting from a downward move in real yields, driven primarily from an increase in inflation expectations and related concern over the purchasing power of the dollar,” Peter Grosskopf, chief executive officer of Sprott said, as quoted by MarketWatch.
It should be noted that gold can be particularly sensitive to moves in the U.S. dollar given that it is traded in the greenback, and a rise in government debt yields can undercut appetite for precious metals.
However, the dollar, as measured by the ICE U.S. Dollar Index fell to around 89.64 on Tuesday, the lowest since early January, according to FactSet data. It trades around 1.6% lower month to date. The 10-year Treasury note yield also declined to about 1.552% Wednesday.
Grosskopf said that gold’s move is important because investors assumed the economic recovery would support an increase in nominal and real yields, and that the U.S. dollar would rebound.
“After a healthy correction due to confidence in the recovery, gold will now anticipate investor concerns over overall debt and deficit levels. The fundamentals for gold have never been better. Record debt and deficit levels, financial markets that are priced for perfection and the emergence of inflation in response. ” he said, adding that gold should now move strongly higher.
The Perth Mint’s Rich noted that how much gold prices will rise and how strong its move will be depends on “whether the anecdotal or ‘transitory’ inflation we have recently seen continues to dominate the news, and in reaction, whether the U.S. dollar trends down further or languishes at current levels.”
The price of gold currently stands at $ 1,903.86 per ounce.
PS: Prices quoted here could change at any time.