Safe-haven demand is pushing up gold prices as we head into the weekend. The price surge for the yellow metal comes on the back of a marked decline in the stock market. Wall Street suffered sharp losses during trading yesterday (Thursday), while bond and currency markets have also started to falter.
There’s a clear sense of risk aversion kicking in, with economists and investors now facing up to the reality of a global recession as inflation continues to cause problems and supply chain issues impact performance.
While Credit Suisse has made it clear the USA is teetering on the brink of a recession (see previous story) the UK has been in full blown meltdown this week following a snap minibudget by the new Truss government. The Bank of England has been forced to step in with an emergency bond buying program to restore stability and prevent a pension pot meltdown. The turmoil comes after the announcement of widespread tax cuts intended to stimulate growth plunged the economy into chaos.
As shockwaves have rippled through international markets, the UK housing market is facing a crash, a deep recession could be on the cards, borrowing costs have increased and the sterling has plunged to record lows. There are fears that the panic could be contagious, creating additional economic troubles away from UK shores.
KPMG now expects GDP to falter with the firm’s chief economist Yael Selfin stating, “Ultimately, we are expecting Q3 to see a contraction in output and also for Q4 to see negative GDP growth. So, we are probably, in fact, in a recession at the moment, just that it started a bit later.”
With volatility and panic sweeping across stocks, bonds and currencies, the gold bulls are quickly gathering steam. As risk aversion sentiment gathers a strong foothold and the IMF and US government urge Prime Minister Truss to reverse course, the yellow metal is creeping up through the price charts. Gold has already burst out from lows which have represented the best buying opportunity for investors in almost three years with more gains on the horizon.
Trading on Wednesday and Thursday alone saw more than £44 ($50) added to the price of gold. It is now trading around £1,477 ($1,650) and holding steady, but additional increases are expected.
Edward Moya, the senior market analyst at OANDA says more is to come. “Gold prices welcomed the BOE’s dramatic intervention that avoided an imminent gilts crash and sent global bond yields sharply lower,” he explained. “This was somewhat expected and serves as a reminder that gold will do just fine once the global bond market selloff is truly over. Global recession fears will likely remain the theme for the rest of the year, and that should limit how far global bond yields end up going.”
