Gold Rally Continues as Fed Hints It Will Delay Rate Hike
Posted by Brian Ford on August 20, 2015
After hitting a five-year low in July, gold has rallied. The price dropped to just $1,078 per ounce in July, but has been on a steady climb ever since, reaching $1,134 on August 19, after the minutes from the most recent U.S. Federal Reserve meeting indicated that an interest rate hike in September is unlikely. In June, the Fed hinted that it would increase the rate this fall for the first time since 2006.
“The minutes show the Fed was concerned about disinflationary pressures coming from China before China’s move to allow its currency to depreciate,” Axel Merk, president and CEO of Merk Investments, told Reuters. “As such, the market appears to price in that a September rate hike is now less likely, providing support to the price of gold.”
The dollar also fell 0.7% on Wednesday following the news while oil hit its lowest value in more than six years. Combined with ongoing currency devaluation and market turmoil in China, many investors are now looking for safety in gold and silver, which also jumped 2.5% on Wednesday. “We are cautiously bullish due to the impact of the firm dollar, which has been a negative weight on the metal,” stated Scotia Mocatta in a note as gold prices increased for the tenth straight day of trading.
Duquesne Capital hedge fund manager Stephen Drunkenmiller is much more than “cautiously bullish” — and starting to look smarter by the day. According to Duquesne’s most recent 13F filing, the renowned investor has made a huge bet on gold, ending the second quarter with nearly 2.9 million shares — more than $300 million worth — of SPDR Gold Trust, the world’s largest gold exchange-traded fund. This is his longest current position and he stands to make his vast fortune even larger if the bet pays off.
Some other international buyers started following suit even before the rebound. China increased its holdings in gold to 1,677 tonnes in July, a 1% jump, and customers in Greece provided twice the expected demand of the United Kingdom’s Royal Mint for gold coins in June, according to the UK’s Financial Times.
For now, with the Federal Reserve seemingly prepared to hold off on making an interest rate increase and emerging markets from China to Brazil looking more precarious by the day, there are few safe havens for investors. Gold has long provided exactly that, so we may see more and more people take the lead of Drunkenmiller and others. This year has been a turbulent one for the precious yellow metal, but those who have held on for the ride are now starting to see their perseverance pay off.
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