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Daily Brief

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Senate stimulus proposal

Golden bulls

Gold topped out, at least temporarily, at $1,981 in the early hours of this morning before dropping back 2%. Its previous peak was $60 lower in September 2011. Importantly, however, sterling and the euro both moved back from short term highs against the USD at the same time: It was a dollar move as much as a gold move.

Like Bitcoin, gold is not a currency but can often be treated as one by investors. The biggest distinction between the precious metal and money is the finite supply, at least in the short term. Central banks can, and do, print money, as demonstrated by quantitative easing. They cannot print gold using any technology currently available. With an eye on the future, and in recognition of the low returns on government bonds (German bunds cost more to hold than gold), the attraction of bullion as a store of value is clear.

As ever, when the price of an investment goes up it encourages investors to climb aboard, and that is what has been happening to gold. It could be argued that they would be better off putting their money into a more liquid safe-haven such as the Swiss franc or Japanese yen but in the chicken-and-egg way of things, they are not going up, so the CHF and JPY lie unwanted. The franc was the weakest performer among the majors yesterday, giving up two thirds of a cent to sterling.

 

Durable goods orders

Analysts’ forecasts for a 7.2% increase in US durable goods orders came close to the actual 7.3% rise. There is still some distance to go, though, before orders return to pre-pandemic levels. The data for June put total monthly orders 15.9% below February. Although the headline number was close to forecast and nondefense orders excluding aircraft were quite a bit stronger than expected, total nondefense orders went up by only 9.2%, less than half the predicted 18.6% increase.

In Europe meanwhile, IFO reported a further improvement in sentiment among German companies. The business climate was up by four points at 90.5 and the expectations measure was a good five points stronger at 97, a 19-month high. It did not do the EUR much good though. It added a quarter of a US cent and was almost unchanged against the GBP.

 

CARES becomes HEALS

The stack of month-end statistics does not properly appear until Thursday. Today’s agenda is quite thinly-populated, with the CBI’s Distributive Trades Survey standing as the only UK ecostat. The focus will be on the US Senate’s proposed economic stimulus proposals, which were unveiled last night.

A good deal of horse-trading is likely between the Republican Senate and the Democratic House, whose HEROES stimulus bill in May was three times the size of this latest $1 trillion plan. Even among the republican ranks Senator Ted Cruz of Texas expects “significant resistance”.

As for the day’s ecostats, Sweden reports on trade and retail sales, S&P prints its Case-Shiller house price index and the Conference Board looks at US consumer confidence. The Australian inflation figures come out tonight.

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