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LGT Navigator: Gold price at a new high

July 9, 2020

Fueled by the current economic and political uncertainty and central bank actions, the gold price pushed above USD 1800 an ounce on Wednesday for the first time since the record highs in 2011 of more than USD 1920. Analysts anticipate further gains as the metal is expected to hold its value during the coronavirus turmoil.

Gold

Spot gold prices against the US dollar have surged 40% in the last 14 months. 2011's record high of USD 1920 an ounce is again within reach. The cause of the price surge, namely the uncertainty caused by the coronavirus measures, slashed interest rates and central bank cash flood, is not going to abate soon. The fear of inflation is very present, as it would typically cause all other non-real assets to devaluate, making gold even more attractive. Opportunity costs for holding the non-yielding shiny metal are near record low, reflected in negative real yields in the fixed income space. All this caused an unprecedented buying spree with huge flows into gold exposure, physically as well as via exchange traded funds and alike. From January to June, 734 tons of the precious metal flowed into the instruments backed by gold, the industry association World Gold Council reported. Worldwide, the volume in gold ETFs amounts to a record 3621 tons.

IMF advocates global fiscal reform

The International Monetary Fund (IMF) watches with care the rising pile of debt in both advanced and emerging economies due to coronavirus stimulus spending. It urges countries to tackle fiscal reform once the pandemic fades out. According to the IMF official Mitsuhiro Furusawa, it is the first time ever that global public debt is rising to above 100% of combined global GDP after governments responded to the health crisis.

Japanese capital goods were hit less hard than expected

Machinery orders in Japan unexpectedly rose in May after corporate profits have been hit from the coronavirus pandemic. The increase in headline orders was caused by demand from the services sector, hiding a plunge in external orders and manufacturing orders. This clouds the outlook for the Japanese export-reliant economy. Core orders rose 1.7% in May after a 12.0% slump in April, the quickest drop since 2018. Overseas orders sank 18.5% in June to the lowest level since 2010. Japan slid into recession in the first quarter as the pandemic measures added to woes for firms and households already staggering from last year’s tax hike and insufficient global demand.

Record-high German rescue parachute approved

After months of discussion, the European Commission has approved the German Corona Rescue Facility WSF, “Wirtschaftsstabilisierungsfonds”. As a result, the Federal Republic of Germany now has EUR 600bn at its disposal to stabilize the economy, according to the Ministry of Finance and Economics. Talks with individual large German companies have already been held. The European Commission would have the competence to prevent distortions of competition and unequal state participation.

Economic Indicators July 9

MEZ Country Indicator Last
14:30 USA Initial Jobless Claims 1 427 000
01:50 Japan Core Machine Orders (Private Sector) -12%

Earnings Calendar July 14

Country Corporate Period
US JPMorgan Chase Q2
US Citigroup  Q2

 

 

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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