Gold Approaches $1,530 an Ounce as Global Stocks Plummet
The price of gold rallied again on Wednesday, printing fresh six-year highs on the back of bond-market volatility and plunging stock prices.
Gold Spikes, Silver Follows
Precious metals were rallying again on Wednesday, as investors fled stocks for the safety of gold and silver.
Gold for December delivery, the most actively traded futures contract, peaked at $1,529.10 a troy ounce on the Comex division of the New York Mercantile Exchange, its highest in since 2013. As of 11:07 a.m. ET, the yellow metal was up $11.40, or 0.8%, at $1,525.50 a troy ounce.
Bullion has gained 19% since the start of 2019 and is about to go a lot higher, according to Goldman Sachs. The U.S. investment bank recently upgraded its forecast for bullion to $1,575 an ounce in three months and $1,600 in six months.
Silver also rose sharply Wednesday, with the September futures contract climbing 16 cents, or 0.9%, to $17.15 a troy ounce.
Precious metals rallied along with the U.S. dollar, which rose 0.1% against a basket of currencies. Gold and silver often trade inversely with the U.S. currency.
Equity markets were in full-blown selloff mode Wednesday, with the Dow Jones Industrial Average losing more than 600 points. The large-cap S&P 500 Index plunged 2.3%.
The CBOE VIX, a measure of 30-day volatility, surged more than 20% to reach 21.19 on a scale of 1-100 where 20-25 represents the historic average.
Bond Markets Stoke Selloff
Bond markets were the main source of investor anxiety on Wednesday, as U.S. Treasuries flashed another recession signal. The yield on the benchmark 10-year Treasury note has once again fallen below the 2-year rate. This so-called yield-curve inversion has happened five times since 1978. According to Credit Suisse, each time the yield curve has inverted, recession follows 22 months later.
The yield on the 10-year U.S. Treasury note reached a low of 1.570% on Wednesday, according to CNBC. That was the lowest in nearly three years.
The two-year yield was down nearly 10 basis points at 1.571%, slightly above the 10-year note. Yields fall as bond prices rise.
U.S.-China trade tensions have exacerbated fears of a global economic slowdown that is impacting both emerging and developed markets. Just last week, the United Kingdom said its economy shrank unexpectedly in the second quarter.
On Wednesday, Germany became the latest economy to contract in the second quarter. Europe’s largest economy shrank 0.1% in the April-June period as global uncertainty and trade-war fears weighed on manufacturers.
In the last four quarters, Germany’s GDP has contracted twice. A recession is usually defined as back-to-back quarters of negative growth.
Germany’s entire yield curve turned negative last week for the first time in history. For the 30-year Bund note, it was the first negative reading in history.
Featured image courtesy of Shutterstock. Chart via Bloomberg.