Gold Rises Above $1,500 on Recession Fears

Gold shows no signs of slowing down as it hovers around six-year highs.

gold rises above $1,500

Gold is showing no signs of slowing down, having gained an additional 1% last Wednesday due to a series of favorable factors. In what is perhaps the most telling show of strength, the metal continues to hover around six-year highs during its traditionally weakest quarter.

According to an article on Newsmax, the most recent set of gains, which sent gold above the $1,520 level, was triggered by renewed concerns that the U.S. could be on the brink of a recession. Throughout the Federal Reserve’s tightening cycle which started in 2015, numerous analysts warned that almost every cessation of interest rate hikes in the past lead to a recession.

After an abrupt dovish shift earlier this summer, these worries intensified as the U.S. Treasury’s yield curved inverted, materializing yet another warning that experts have been issuing for months. According to Newsmax, movements like these are usually a tell-tale sign that a recession is underway, and the Fed seems to concur. Even before the yield-curve inversion, a Fed gauge placed the risk of a domestic recession happening in the next 12 months at its highest point since 2008, when the global financial crisis hit.

The latter point is especially prominent given various disappointing showings by key economies in the eurozone. Countries like Germany and France, both major producers, have seen a significant decline in their factory output in recent months, reports Newsmax. And, after hinting towards a hiking schedule of its own, the European Central Bank followed the Fed’s U-turn by slashing growth forecasts and alluding to potential monetary easing in the near future.

The eurozone’s GDP barely saw any growth during the second quarter, driven not only by disappointing economic data but also trade conflicts and Brexit-related complications. A no-deal Brexit, which initially seemed highly unlikely, is now looking increasingly probable as Britain’s parliament is unable to reach a satisfactory trade deal with the European Union as the October 31 exit deadline approaches. A hard exit from the EU would severely disrupt the British economy and likely have significant consequences on the rest of the eurozone.

Jeff Klearman, portfolio manager at GraniteShares, noted that different EU economies are now reporting negative growth, suggesting that an impending crisis could envelop the entire global market instead of just the U.S. Klearman also noted that, currently, gold doesn’t appear to have any headwinds worth mentioning as the metal’s momentum keeps building.

Newsmax reports that Tuesday’s trading session saw gold move as high as $1,534 an ounce due to geopolitical concerns stemming from Hong Kong and Argentina, while silver rose to $17.17 an ounce after hitting its highest level since January 2018.

As the U.S.-China trade war escalates further, investors have noted that China’s industrial output in July grew at its slowest pace in 17 years. On the domestic front, the markets are predicting a 68.8% chance that the Fed will perform an additional 25-basis-point rate cut in September to offset the effects of the trade war.