Market Reports

Learn more about all important trends in the precious metals markets in our market reports on a regular basis.

Heraeus Precious Appraisal

  • Edition 28 - 10 August 2020

Is it time to take profits in gold?

Momentum may have carried gold too far. Since the market turbulence ended in March, the gold price has been making new highs and breached $2,000/oz. However, other safe havens have not moved as far. The 10-year US Treasury yield has only just moved to a new low and the yen has not strengthened beyond its level in March. In addition, the economic recovery that has taken place following the easing of lockdowns is not enough to justify the current level of stock markets in the US or Germany. Another bout of market volatility could see gold sell off again, as happened in March.

Dollar weakness could reverse and then gold would struggle. The dollar has been weakening against the euro for some time and this has helped gold’s rise. However, speculative futures contracts long the euro, and therefore short the dollar, have just reached a record level. Previous extremes have occurred around turning points. This suggests that the dollar’s weakness could soon reverse and that would be a headwind for gold.

Central bank monetary policy is not inflationary. The ECB has been matching the Fed euro for dollar in expanding its balance sheet, with both now over $7 trillion. When gold reached its previous record high in 2011, the Fed was in the middle of QE2 (Quantitative Easing 2), having expanded its balance sheet from $900 billion in 2008 to $2.9 trillion in 2011. Meanwhile, the Eurozone was dealing with the Greek debt crisis. However, inflation has not increased. US core CPI (excluding changes in energy and food prices) has been less than 2.5% since 2008, as has the EU’s Harmonised Index of Consumer Prices (HICP). Inflation is showing up in financial asset prices, not CPI.

Bond yields near historical lows demonstrate more concern about deflation than fear of inflation. Real interest rates are negative which tends to boost gold. However, the Fed has said it will not move to negative interest rates, and should inflation turn into deflation then the real interest rate will rise which would also be a headwind for gold. Buying gold at these levels offers much less of a margin of safety.

To read the full report and get updated every week with market insights, please subscribe to Heraeus Precious Appraisal .

This document is being supplied to the recipient only, on the basis that the recipient is reasonably believed to be a professional market participant in the precious metals market. It is directed exclusively at entrepreneurs and especially not intended for the use of consumers.

The material contained in this document has no regard to the specific investment objectives, fi nancial situation or particular need of any specifi c recipient or organisation. It is not provided as part of a contractual relationship. It is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or as advice on the merits of making any investment.

This report has been compiled using information obtained from sources that Heraeus and SFA (Oxford) Ltd (“SFA”) believe to be reliable but which they have not independently verified. Further, the analysis and opinions set out in this document, including any forward-looking statements, constitute a judgment as of the date of the document and are subject to change without notice.

There is no assurance that any forward-looking statements will materialize. Therefore, neither SFA nor Heraeus warrants the accuracy and completeness of the data and analysis contained in this document.

Heraeus and SFA assume no liability for any losses or damages of whatsoever kind, resulting from whatever cause, through the use of or reliance on any information contained in this document. However, in so far as a liability claim exists under German law, Heraeus and SFA shall have unlimited liability for willful or grossly negligent breach of duty.

Unless expressly permitted by law, no part of this document may be reproduced or distributed in any manner without written permission of Heraeus. Heraeus specifi cally prohibits the redistribution of this document, via the internet or otherwise, to non-professional or private investors and neither Heraeus nor SFA accepts any liability whatsoever for the actions of third parties in reliance on this document.