At $2,021.73 per troy ounce ($65,000 per kilo) gold is trading close to a record high. Ultra-low interest rates, inflated equity prices and the possibility of QE-driven inflation down the line have encouraged some investors to stock up with John Maynard Keynes’s “barbarous relic” because they have no better idea. Safe-haven currencies are not keeping pace.
The price of gold is up by 33% in USD terms from its level at the beginning of the year. The JPY is 3% higher and the CHF is 6% firmer. So it is not simply that investors are seeking safety, they are recognising that 0.12% return on one-year US Treasury bills and the roughly 0.12% cost of storing gold do not tell the whole story: With US inflation currently at 0.6%, holding those Treasuries generates a net annual loss of 0.48% as inflation eats five times as much as the yield brings in.
Of course, there is no yield whatsoever from gold. Investors buy it in the hope that its price will go up. Which is fine as long as it does, and as long as they accept that the market for gold is nowhere near as deep and liquid as the currency market. Gold is a commodity, not a currency.
There was a little more movement among currencies yesterday than on Monday but no clear trend towards, or away from, risk. The Australian dollar won the day, taking a cent and a quarter from sterling, and the Canadian dollar came second with a one-cent gain. The US dollar narrowly stole last place from sterling, dropping a seventh of a cent.
The economic data brought nothing to the debate during the London session. Eurozone producer (factory gate) prices rose 0.7% in June and were 3.7% lower on the year. Canada’s manufacturing sector purchasing managers’ index came in much stronger than forecast, five points higher on the month at 52.9, and sent the Loonie higher. US factory orders rose by 6.2% in June after a 7.7% increase in May.
Overnight jobs numbers from New Zealand revealed that total employment fell 0.4% in the second quarter while unemployment also fell from 4.2% to 4%. Both numbers were much better than expected, though the NZD could manage no better than an average performance on the day.
PMIs round two
This time it’s services. Today’s PMIs for July will be examined for confirmation that activity in most countries’ services sectors continued to recover following their Covid-induced trough. Early signs are that they could be disappointing.
Australia opened the bidding with a quarter-point deterioration to a still-healthy 58.2 for services and a composite reading of 57.8. Japan festered at 45.4, less than half a point higher on the month. China’s Caixin services PMI was another faller, down by more than four points at 54.1. Spain’s 51.9 was also unexpectedly lower by three quarters of a point at 51.9.
Britain's services PMI just missed the forecast of 56.6, coming in at 56.5 in July, up from 47.1 in June. This puts the sector in the growth zone, and marks the fastest increase in five years, although this is largely due to the low base after the record low of 13.4 in April. The major Eurozone services PMIs are predicted to range from 51.1 in Italy to 57.8 in France. The two US readings are expected to remain divergent, with a 55 from ISM and a 49.6 from Markit. Ahead of London’s opening tomorrow the Bank of England will report on its latest interest rate decision.