Could Hurricane Harvey Spin the Precious Metals Market?
Hurricane Harvey and gold
As we discussed in our previous article, precious metals remain vulnerable to global events. Another important phenomenon that has captured the attention of the market is Hurricane Harvey. The massive storm caused widespread damage along the Gulf Coast.
The economic damage wreaked by Hurricane Harvey could reach ~$24 billion. The production of oil and natural gas was also adversely impacted in the Gulf of Mexico.
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The risk appetite of investors tends to sink whenever geographic tensions rise. Capital flees to haven assets like Treasury bonds, pushing the yields lower. As safe-haven assets, silver and gold also rise during such uncertainty.
Yields and gold
The chart above is a comparison of US bond yields (IEF) (SHY) and gold (GLD). As Treasuries and gold both see their demand rise during times of market unrest, higher bond prices lead to lower interest rates. Lower interest rates promote demand for gold, which is a non-yield bearer.
Precious metals saw an up day on Friday, September 1. Palladium was the top gainer among the precious metals over the past one-month period, increasing a whopping 9.8%. Palladium saw its biggest one-day surge since March 2016, rising 5.3% on Friday, September 1.
Palladium reached its highest price in almost 16 years after some US automakers reported better-than-expected August sales. Higher demand is expected in flood-affected areas, as Harvey left many vehicles damaged beyond repair.