With Tuesday’s modest gain, gold prices look poised to push to their highest level since November of 2012 as a strengthening U.S. dollar and a slowing economy stokes safe-haven demand for gold as a store of value and way to hedge against the economy slowing. The rally in gold prices is also continuing its recent trend of taking its cues from gold-backed exchange-traded funds (ETFs).
The U.S. dollar index has fallen after Monday’s modest increase while the yield on 10-year U.S. Treasuries continue to drop. Gold also recently broke out above two-year highs after breaking above a key support level at $1,299.80.
Gold Rally Continues Into May’s Comex Quarterly Comex prices surged above $1,300 an ounce Tuesday and hit a 5-year high above $1,300 an ounce in early April 2018, but for the most part gold prices have been weighed down by a strengthening U.S. dollar and a slowdown in economic growth worldwide. Demand is also weak, with major jewelry producers over the last month or so slashing back investments in Russian gold smelters, media reports indicate.
Meanwhile, gold-backed exchange-traded funds have spiked, with outflows from funds backed by silver tracking or close to reversing last week’s significant move higher.
Gold’s surge thus far in June has been almost entirely driven by speculators purchasing the precious metal, with net-long positions at 36-year highs, on the heels of a record-setting short squeeze in March. Large contracts that were shorted and even temporarily halted from delivery outpaced any net-buying by investors, skewing gold prices.
Oil prices edged higher in early trade Wednesday after the U.S. Treasury Department warned that the country’s financial security may be at risk unless major producers curb production. Ahead of a two-day meeting of major oil producers in Vienna later this week, the Treasury Department report comes amid a continued decline in oil prices over the last month.
The Dow Jones Industrial Average was little changed Tuesday, largely in line with gains in the S&P 500 and Nasdaq Composite, as investors grappled with mixed data and escalating tensions in the Middle East. Intel and Apple were among the biggest drags on the Dow on Wednesday as earnings season finally turns around.
Two-thirds of S&P 500 companies topped estimates for the quarter, but slightly more than one-third missed on earnings, according to estimates from IBES data compiled by Refinitiv. The index saw $53.03 billion in estimated revenue in the April-June period, higher than the first quarter’s $51.35 billion but down from the previous year’s $56.14 billion.
Both Goldman Sachs and Morgan Stanley are set to report earnings after the bell Wednesday, with analysts expecting both banks to post earnings of $5.58 a share on revenue of $8.55 billion.
The United States oil ETF (USO) was trading at $40.56 per share on Wednesday afternoon, up $0.08 (+0.04%). Year-to-date, USO has declined -9.98%, versus a -10.05% rise in the benchmark S&P 500 index during the same period.