This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: U.S. trade tumbles 30% year-to-date, $1,900 as the next target for gold, and Bank of England chooses to keep Venezuelan gold amid a coup worsened by the pandemic.
Census Bureau report shows a massive drop in U.S. trade, along with a new favorite import
The Census Bureau’s latest report was, in some ways, a reflection of the U.S. government attempting to mitigate the effects of the pandemic. While the report showed that 4.8 million jobs were added in June, it also highlighted an unprecedented 29.83% year-to-date drop-off in U.S. trade.
Looking deeper into the data, however, Forbes contributor Ken Roberts has highlighted even more interesting takeaways. While the trade deficit has been inching lower, Roberts points to the ratio of exports against imports as an equally important metric, if not more so.
In May, U.S. exports made up only 36% of total U.S. trade, a figure that Roberts believes is the lowest on record for any month. One record figure over which there are no doubts, however, are gold imports. In March, April and May, the U.S. brought in $3.07 billion, $7.54 billion and $8.77 billion worth of gold bullion, respectively.
The combined import figures for the three months are higher than the annual gold import figure for 2016, the highest year on record. Roberts further notes that, prior to March, monthly gold imports to the U.S. only exceeded $2 billion on three occasions in the past decade. With these numbers, gold has swept away computers and cars to become the nation’s clear-cut number-one import for the month of May, having had its imports value increase by 1,700% year-to-date.
With talks of new import levies on many of the U.S.’ top trading partners such as China, gold may yet find its place among the nation’s top imports in the annual report.
MKM Partners sees gold bouncing to $1,900 as yields fall off and uncertainty emerges
The inverse correlation between gold and stocks has traditionally been a strong one, with the former representing a demand for safety and the latter a risk-on sentiment. Recently, however, the two asset classes have been moving up together, an unusual behavior that signals both investor concerns and exceptionally strong fundamentals on gold’s part.
The move up has very much continued this year, as gold managed to recently touch above $1,800 after climbing for the better part of the year. With a key resistance level being touched, many are now looking to what’s next, and MKM Partners sees $1,900 as a plausible scenario by year’s end.
Speaking to CNBC, MKM Partners’ chief market technician JC O’Hara explained how bond yields are likely to be gold’s biggest driver moving forward, especially since market watchers can no longer use the stock market as a gauge. With safe-haven demand intensifying, gold is scheduled to keep moving up due to falling real yields, forming the basis of O’Hara’s forecast. Considering the state of most other sovereign bonds, the price target of gold in O’Hara’s Treasuries-based analysis might seem modest.
Gina Sanchez, CEO of Chantico Global, expanded upon the notion of bonds as gold’s go-to tailwind, since low or negative yields are generally synonymous with loose central bank monetary policies. “I think we’re going to look back at this high and see it as the beginning of a new trend for gold. One of the biggest elements that drives gold is the direction of yields,” she said. “We have dropped a money bomb and a money printing effort, not only on the part of the U.S. government but governments around the world. That is going to lead to a continued stimulative effect that will impact gold for years to come.”
Bank of England opts to keep Venezuela’s $1 billion of gold until the regime stabilizes
Venezuela’s $1 billion stash of gold bullion was viewed by many as the key to victory in the faction war between the country’s disgruntled president Nicolas Maduro and the opposition’s Juan Guaido. Over the past year, Guaido has solidified his position as the struggling nation’s head after already being recognized as such by most nations.
With the gold being expatriated to England, pundits have stated that getting a hold of the stockpile would be Maduro’s best way of reclaiming his position, with Guaido saying that the stash must be used to rebuild the country’s economy. As the pandemic hit the nation, Maduro requested that the United Nations Development Programme (UNDP) urges the Bank of England to repatriate Venezuela’s gold to provide medical aid.
While the U.K. doesn’t recognize Maduro as Venezuela’s president, the Bank of England nonetheless sought clarification on the matter as it operates independently of the government and holds around $254 billion in foreign gold reserves. And, after instructions from the British court, the BoE made the decision to deny the repatriation request.
Sarosh Zaiwalla, senior partner at Zaiwalla & Co and a representative for Venezuela’s central bank, said that the gold is the only way for the government to deliver aid, adding that the ruling has endangered the lives of the nation’s citizens. On the other hand, Guaido expressed doubts as to what the gold would really be used for and urged the BoE not to fulfill the request, saying that it would give Maduro a way to maintain his grip on the nation despite a lack of international recognition.
With the Venezuelan gold now apparently under Guaido’s limited control, insiders have said that the opposing regime is looking for ways to translate it into relief efforts through cooperation with the National Assembly and the United Nations.