Gold price bounces back after disappointing Fed minutes

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Gold recovered from the 3% loss recorded last session as US employment data took a turn for the worse with unemployment claims unexpectedly topping one million again, while the Federal Reserve minutes reiterated concerns over economic recovery.

Spot gold gained 0.8% to $1,946.03 per ounce by 12:30 p.m. EDT Thursday, while US gold futures fell 0.9% to $1,951.90 per ounce in New York.

The Fed’s July meeting minutes released on Wednesday afternoon revealed that policymakers expressed little support to cap bond yields, putting pressure on gold prices. At the same time, the committee also did not rule out more monetary support should financial conditions worsen.

“The Fed minutes reiterated the need for people to own gold, they were still concerned about the coronavirus and its impact on the economy, that shows they want to stay accommodative and help consumers stay afloat,” Michael Matousek, head trader at U.S. Global Investors, told Reuters.

An unexpected rise in US jobless claims and weaker equities were also helping gold, analysts said. However, with the dollar index at a near one-week high, it has capped gold’s gains by making the non-yielding bullion expensive for holders of other currencies.

“The main fundamentals behind gold have not changed. Stimulus is still coming in and it’s very pre-mature to say we’re recovering globally and should see higher rates and stronger dollar; we are many months away from that.”

Edward Meir, an analyst at ED&F Man Capital Markets

Central banks have rolled out massive stimulus and cut interest rates to near zero to combat the economic toll from the coronavirus crisis, prompting a near 30% gain through the year in gold, considered a hedge against inflation and currency debasement.

Currency debasement

Gold will likely extend its record-setting rally on “massive currency debasement” and expectations for further stimulus, according to SkyBridge Capital, which recently added exposure to the metal after exiting in 2011.

“When you think of currency debasement the question is, what is the dollar going to weaken against, and when you look around the globe, it’s hard to be excited about alternative currencies,” Troy Gayeski, co-chief investment officer and senior portfolio manager, stated in an interview with Bloomberg. “So, gold is obviously a natural alternative currency.”

Gold is “fairly rich versus oil or other real commodities, but it hasn’t appreciated nearly as much as money-supply growth since its previous peak in September of 2011,” Gayeski added.

“It wouldn’t surprise us if by the end of next year, it’s around the $2,100-to-$2,200 range.”

Keeping caution

Meanwhile, some in the market are beginning to take caution with regards to the precious metal. In an earlier interview with Financial News, legendary investor and renowned gold bull Mark Mobius warned investors to steer clear of gold until its price drops.

“The safest investments are equities and precious metals such as gold. However, I would not advise buying gold or precious metals at this time until a price correction has taken place.”

Mark Mobius, Mobius Capital Partners LLP

Mobius’ comments represent a sharp contrast from his stance on gold earlier this year. In July, he advised that investors should continue buying gold even when the precious metal first started breaking to new highs.

(With files from Reuters)