The price volatility in precious metals went into overdrive this morning as gold spot contracts skyrocketed first to the short-lived stratospheric highs above $1980/toz in early Asian hours and then nuzzled into the mud of a fleeting low at $1907/toz in the European morning. Afterwards they managed to recover by $15 higher again in several minutes and touched $1935/toz before the noon. The range of jumps reached as much as 15% for silver futures, which managed to draw alternately $26.15 and $22.25, and $24 again on intraday charts.
Most likely, such round-the-world flights are the result of the ordinary inertia of the vertical take-off in previous days, which met with a wave of powerful profit-taking as many investors felt that the pace of the move would find a rational roof soon. Long lifters of the market may remember the summertime of 2011, when gold prices were beating their heads against a sturdily constructed ceiling just between the range of $1,870 and $1,920/toz, and after that collapsed in a heap to the $1500 area for the next couple of weeks.
Perhaps, even "gold-enthusiasts" are afraid of something similar being repeated this time, although all major factors are in favour of the further rise of precious metals remaining intact. Gold, silver and other metals, as well as some hotspot stocks with their well-functioning business processes and monetisation schemes, seem to be a preferred investment for some funds and private persons compared to the cash assets nominated in U.S. Dollars or in Euros as the "money printers" in America and Europe are running. The balance sheets of the Federal Reserve and the European Central Bank both added more than eight trillion altogether with the pretext to "save" the financial system and the global economy during the pandemic.
By the way, silver spot prices reached $49.80 in 2011, although they dropped in September of the same year to $26 per ounce "only". So, the current rise "only" to $26 on very high levels during these days of July 2020 can be seen to resemble a pygmy jump. Logically speaking, the rise in gold prices could also amount to at least a few hundred Dollars more per Troy ounce since the maximum of 2008 was then rewritten by almost $900 in 2011, while in 2020 the pre-coronacrisis New Year's peak near $1611 for gold spot prices has been surpassed so far by less than $400. Of course, it is worth noting that rational calculations could easily be out of sync with the reality of our irrational times.
Almost the similar considerations gave rise to volatility jumps today also in currencies, which ran somewhat ahead of the "normal" rise within the natural concept of "the emperor wearing no clothes" for the Greenback. To continue yesterday's analogies with a well-known story by Hans Christian Andersen, a vain and naked king who was mocked by the crowd, yet he was not dethroned or removed from his power. So, following the "fashion trend" to get rid of the excess volumes in U.S. Dollars, the market crowd also draws lines for itself at some particular but probably intermediary levels to make pullbacks, but to continue moving again after buying some fresh dips which are still located higher than the peaks of the previous week. Similar movements are observed for EUR/USD, which slipped from 1.1780 highs to below the 1.1700 area today, but again climbed to 1.1750. The AUD/USD feels a mental stumbling block, when trying to approach 0.72 or even 0.7150. The Aussie is still well-supported on levels in between of 0.70 and 0.71.
This is happening because currency markets are expecting a new surge in demand for the Old World's public debt, as the European Commission is planning to borrow more money to finance the New Generation EU stimulus package. Australian bonds are in demand not only because of the higher coupon yield compared to their U.S. and European counterparts, but also for some other reasons mentioned in this piece.
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