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Commodities - SEPTEMBER 4, 2019

Gold prices spike beyond expectations as possible recession looms

by Kali Persall

Fueled by trade war tensions between the United States and China and a looming recession, gold is getting bullish and prices are peaking beyond expectation.

According to a monthly report by Sprott Gold Miners, gold bullion prices hit $1,524 per ounce in the month of August, a 7.8 percent (or $110) gain. The asset has steadily risen each month, with the average price of gold for the year recording at $1,296 as of May 31. In June and July, the price rose steadily to $1,362 and then to $1,426. The average price of gold in August versus the first five months of 2019 is up +16 percent, according to Sprott.

In addition, the report found that gold significantly outperformed other asset classes, such as silver bullion.

The precious metal’s swift upward mobility has already surpassed analysts’ expectations. In January, Goldman Sachs Group predicted gold would climb to $1,425 an ounce over the year, a level that hadn’t been seen for more than five years, according to Bloomberg. Now, analysts are forecasting a raise to $1,600 an ounce over the next six months.

According to Sprott, year-to-date, gold is up 18.6 percent, ahead of the S&P 500 Index’s rise of 15.34 percent.

On Aug. 21, the U.S. Treasury two-year and 10-year note yield curve inverted so that the two-year yield became higher than the 10-year yield for the first time since June 2007, signaling the possibility of the U.S. entering into a recession within the next two years. It has accurately forecasted the last five successive U.S. recessions.

“By all measures that we track, gold bullion is advancing in a very bullish manner. Like recent prior months, the accumulation of gold continues, yields are all lower and more tail risks are emerging,” according to the report. “United States 10-year yield has fallen below our 1.60 percent technical target without a pause. The 1.36 percent low of 2016 is now the likely target, but given the strength of this move, we would not be surprised if it fell below this level as well. There are many forces at play and more being added.”

 

Read the full report here.

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