The charts that matter: gold hits a fresh eight-year high

As gold heads for new all-time highs, John Stepek looks at how that's affecting the other charts that matter most to the global economy.

Quite an exciting week this week on a number of fronts. Most notably, gold hit a new eight-year against the US dollar and is on the home run to hit a new all-time high. Gold and inflation are among the many topics we’ll be covering in MoneyWeek over the summer issues, so if you’re not already a subscriber, get your first six issues free by signing up now (and you get our most recent ebook entirely free too). 

No new MoneyWeek podcast for you this week, but I did have another enjoyable chat about Covid-19, lockdowns, V-shaped recoveries and lots of other topics with Conor Devine on his podcast Money and Plantsyou can check it out here. And if you missed Merryn’s interview with Laura Foll last week, catch up here. 

Also, my book – The Sceptical Investor, a guide to contrarian investing – is on sale right now. You can get 30% off if you buy it from the Harriman House website. Just enter the code HHSUMMER20 when you come to pay.  

Here are the links for this week’s editions of Money Morning and other web stories you may have missed.

I also had a chat with the team at challenger wealth manager Netwealth about how income investors can adapt to a world of miniscule interest rates and rather less generous dividend payouts – you can watch it here. 

On to the charts of the week... 

The charts that matter

Gold had another good week, breaching the $1,800 an ounce mark for the first time in more than ten years. These things never move in a straight line but it does seem likely that gold is on its way to a new record US dollar high (the last one was set in 2011, at just above $1,900). 

(Gold: three months)

The US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) fell somewhat this week, which was one reason for gold’s gains.

(DXY: three months)

The Chinese yuan (or renminbi) grew significantly stronger against the dollar (when the black line on the chart below falls, the yuan is getting stronger) to the point where the number of yuan to the dollar dropped below the €1/¥7 mark which used to be viewed as a “line in the sand” and a warning sign for devaluation by the Chinese government. It helped that the US dollar was generally weaker, and also that China’s stock market surged with the blessing of official media outlets. 

All else being equal, a stronger yuan is bullish – it means there’s less risk of a deflationary surge. 

(Chinese yuan to the US dollar: since 25 Jun 2019)

The yield on the ten-year US government bond trickled lower this week. It’s interesting that yields simply refuse to rise in the face of other measures that suggest at least some in the market are a bit wary about inflation (rising gold, for example). The best explanation I think is that markets are betting that government bonds in general are now pretty much entirely central bank-controlled. If the central bank wants yields to stay low, they just stay low.  

(Ten-year US Treasury yield: three months)

The same goes for the yield on the Japanese ten-year (Japan of course is where yield curve control first started to happen in the post-2009 world). 

(Ten-year Japanese government bond yield: three months)

The yield on the ten-year German Bund slipped further into negative territory. 

(Ten-year Bund yield: three months)

Copper is still the V-shaped recovery believer’s best friend. It has shot up like a rocket in a virtually straight line since hitting rock bottom at the end of March. In fact, if you’d gone long copper on the day that Britain locked down, you’d have done very well for yourself, with only a brief, nerve-racking correction in late April to cope with. It was very much helped by the generally bullish tone on China this week.   

(Copper: three months)

The China and commodities-sensitive Aussie dollar also crept a bit higher, helping the weaker dollar.

(Aussie dollar vs US dollar exchange rate: three months)

Cryptocurrency bitcoin continues to trade in an exceptionally tight range (certainly by its historic standards). 

(Bitcoin: three months)

This week’s US weekly jobless claims figure was better than last week and better than economists had expected. The number of new claims fell to 1.31 million (down from 1.41 million last week, which was itself revised a little lower from 1.43 million). Economists had expected a figure of closer to 1.4 million. The four-week moving average now sits at 1.44 million, compared to last week’s 1.5 million.

(US jobless claims, four-week moving average: since June 2019)

The oil price continues to edge higher despite a general lack of bullishness about the sector.  

(Brent crude oil: three months)

And it was another incredible week for tech stocks. Amazon hit a fresh record high...

(Amazon: three months)

… as did electric car group Tesla. What’s going on? I tried to break it down in yesterday’s Money Morning.  

(Tesla: three months)

Just before you go – if you’re feeling bereft of dividend income, then make sure you register to watch this webinar! At the end of this month, Merryn will be interviewing James Dow, co-manager of Baillie Gifford’s Scottish American Investment Company, all about the best places to go hunting for sustainable income in the post-coronavirus world. Register to watch the interview here – it’s completely free.  

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