Mixed Week for Gold and the Markets
Gold had an up and down week. It was under $1,320 to start out Monday, but during the week it rallied past $1,325. However on Friday it pulled back again to around $1,315. Silver followed a similar rise and fall pattern. The stock market was similarly choppy. It dropped mid-week on political uncertainty with Secretary of State Rex Tillerson’s departure from the State Department. The dollar index also struggled until rebounding Thursday, putting pressure on gold. Bond yields were up with the 2-year hitting its highest level since 2008. The cryptocurrency market had the roughest week with a market drop of about $60 billion this week across the board.
Gold Remains Desirable
Despite the struggle this week, gold remains desirable right now. It has been trading this week on uncertainty trade coming from geopolitics and domestic politics, but other factors are driving it as well. For one, gold and bonds are not trading together, and a breakdown in the bond market could benefit gold. Gold has also been reacting bearishly to hawkish interest rate policy tones out of the Fed, while the dollar strengthens. Historically though, the correlation is not as clear cut as future speculators think and react. This is a short term pattern for gold and the dollar.
What this means for investors: No one can say exactly when the break out is going to come for gold. The stock market’s run has extended further than many expected already with indications it could continue to stay strong for a while yet. Gold and silver are still both treading water for now though and investors are taking advantage of buying opportunities in expectation of a break out in the near future. As the dollar puts pressure on prices, look for those dips to buy.
How Much Gold Is in Fort Knox?
It’s well known that countries like China, Russia, and Turkey are rapidly increasing gold buying. Where does the U.S. stand for gold consumption? The U.S.government reportedly has 8,133 tonnes of gold sitting in vaults in Fort Knox, Kentucky (according to Federal Reserve data). The Fed claims it has been at this level since 1974. In 1953 though, the U.S. had 20,000 tonnes of reserve gold. 1953 was also the last year it was audited. So although over 11,000 tonnes were recorded as sold between 1953 and 1974, between 1974 and now, there has reportedly been none sold since. While this would be reassuring if verified, it does not seem plausible.
What this means for investors: Does the U.S. gold hoard and how much is there really matter? Absolutely. Gold is a bedrock of financial security. Inflation today is 79 times greater than what it was in 1953, and, adjusted for inflation, the debt level is over 900 billion dollars higher now. There is nothing to back up or ensure all of this fiat money if they become worthless one day. What will it mean for the dollar if those countries holding the majority of U.S. debt accumulate more gold (which seems likely)? Certainly nothing good. These emerging market countries want economies with a sound position in gold because gold is real wealth.
Hungary Is the Latest Country to Take Back Gold
The rate of gold buying by governments and central banks has been rising for some time as gold remains desirable. However, it’s not just gold buying that some countries are doing. Germany recently repatriated most of its physical gold from abroad back to within its borders bringing it back to its direct control in Frankfurt. Now Hungary just followed suit. The National Bank of Hungary (NBH) brought back 100,000 ounces (3 tons) of gold that was being held in London to Budapest. The head of the NBH said it was not just to have a safe investment secured within the nation’s borders, but to have a strategic tool to support economic confidence both domestically and abroad.
What this means for investors: As the threat of geopolitical risk rises, nations are increasingly keen to have physical assets secure and under their direct control. Gold is wealth and means security and confidence both in geopolitics and to the private individual.
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