Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Despite major economic decisions and geopolitical events last week, gold prices held their ground, managing to surpass the psychologically important $1,300 level on three of the five trading days. The major market movers influencing gold prices were the Fed interest rate hike, rising inflation, and the official start of a trade war between the U.S. and China.
Gold Price Movement Indicators:
Monday, June 11, 2018
Gold Mining Innovation
On Monday, Mining.com reported that researchers at the University of Notre Dame have developed a new method of chemically extracting gold from its ores that could lower production costs. The technique employs a new class of molecules whose properties enable them to capture and contain the ions of precious metals. Scientists first convert gold-laden ore into chloroauric acid and then add an industrial solvent to the solution. Next, the special molecules extract the gold from the solvent. No water stripping is necessary, making the process safer for miners and the environment.
Innovations with the potential to lower production expenses are welcome news to the mining industry, which the World Gold Council predicts will grapple with rising costs and a lack of new discoveries over the next 30 years. This could help keep the gold spot price from rising astronomically as these issues play out in the industry in the future.
Bitcoin Crash
Gold got some competition last year from Bitcoin, but extreme price volatility, a series of scandals, and several crashes have sent investors running from the cryptocurrency. After hitting $20,000 in December, Bitcoin tumbled to under $7,000 on Monday following the hack of Coinrail, an exchange in South Korea. With market participants wondering, “How low can Bitcoin go?” gold is once again shining as the best defensive asset. Read more about Bitcoin vs Gold.
Gold prices jumped to the other side of the psychologically important $1,300 level on Monday: the low of $1,294.80 at 7 am was followed by a high of $1,301.10 at noon.
Tuesday, June 12, 2018
Geopolitical Stability
After nearly a year of heightened geopolitical risk over North Korean nuclear missile testing and an exchange of threats between President Trump and Kim Jong Un, the two leaders met on Tuesday. During the controversial summit, they pledged to work toward the complete denuclearization of the Korean Peninsula.
Demand for gold—usually viewed as a safe haven—slumped following the meeting, with a low of $1,294.80 at 9 am and 3 pm and the high of $1,298.80 at 11 am. The impact on the markets may be short-lived, though. ‘In general, the lowering of geopolitical risks are a good thing, but the lack of specifics from the meeting—including a lack of timelines—leaves little to trade on and so the impact on the markets from the summit has been negligible,’ noted the chief investment officer at Independent Advisor Alliance, Chris Zaccarelli.
Wednesday, June 13, 2018
Rising Interest Rates
The much-anticipated Federal Open Market Committee (FOMC) meeting on Wednesday resulted in an interest rate hike. The Fed raised its benchmark federal-funds rate by a quarter percentage point to a range of 1.75 percent to 2 percent and announced plans to increase rates four times instead of only three in 2018.
Higher interest rates make interest bearing assets like stocks more attractive to investors. However, gold prices weren’t hit that hard by the news, hovering just below $1,300 at $1,299.70 by 4 pm. This was the view chief market analyst at Think Markets UK, Naeem Aslam, took, ‘Two more rate hikes are expected, and the question is if the Fed is taking it too far. [The market doesn’t seem to think so] because when we look at the gold market, the initial downward reaction wasn’t that strong.’
Thursday, June 14, 2018
Inflation
Higher interest rates may increase the opportunity cost of holding gold but they’re also a buy signal for the yellow metal. The Fed raised rates to curb inflation, which continues to accelerate. On Thursday, inflation hit a new 75-month high on headline CPI at 2.80 percent. At the same time, producer price growth surpassed 3 percent to 3.1 percent.[1] Compounding the problem is wage stagnation due to rising production costs.
Market participants are concerned. ‘[Investors] are purchasing gold, because they can understand it, as opposed to not understanding why that wage inflation is not going up more,’ said head trader at U.S. Global Investors Michael Matousek.[2]
Gold prices shot to a one-month high of $1,309.70 amid growing inflation worries.
Friday, June 15, 2018
Trade War
Markets awoke on Friday morning to news of China vowing to ‘quickly react and take necessary steps’ if the U.S. ‘harms its interests’ in the lead up to President Trump’s decision on whether or not to impose steep tariffs on Chinese imports. Despite the warning from leaders of the world’s second largest economy, President Trump announced the U.S. would follow through on its threat of levying a 25 percent tariff on $50 billion worth of goods ‘in light of China’s … unfair trade practices.’
China didn’t take the news lightly, promising ‘We will immediately introduce taxation measures of the same scale and with the same intensity.’ The Trump administration responded with a second round of tariffs on another $100 billion in Chinese goods. The trade war is officially on!
Despite comments from the International Monetary Fund that Trump’s “tariffs threatened to undermine the global trading system, would prompt retaliation by other countries and damaged the U.S. economy,” gold pulled back on Friday from the high of $1,301 at 1 am to the low of $1,276.30 at 1 pm due to a stronger dollar and speculators liquidating long positions.