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Does Rising Global Uncertainty Boost Gold Prices?

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Global data over the last week

On the European front, the German economy seems to be underperforming. Negative ZEW Economic Sentiment, which surveys the health of the German economy, signals less optimism for the euro.

US data on core retail sales and retail sales were flat and as forecasted, so they likely had little effect on the US dollar. However, the unemployment claims were greater than expected, signifying that there are more people unemployed in the country than forecasted. From an expected 272,000, the outcome fell short at 274,000. Consumer sentiment was also less than anticipated. The above data may result in a postponement of the Fed’s rate hike from September to December—or even maybe beyond that.

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Turbulent China

Industrial production data for China was also negative. The year-over-year change in the total inflation-adjusted value of the output was 6% while the forecast was 6.7%. This underperformance is negative for the yuan. The recent devaluation of the yuan has played a role in spiking gold prices. Gold futures on Comex for August expiry surged 0.51% and settled at $1,118.40 per troy ounce.

As the data confirms, the rising turbulence in Asia and uncertain US markets may result in investors going for alternative investments like precious metals. If we look at the five-day trailing performances for precious metals, we see that gold, platinum, and palladium climbed 0.97%, 0.46%, and 0.98%, respectively. Silver, however, had a five-day trailing loss of 0.81% and settled at $15.298 on August 17.

Miners go green

Most mining investments saw an up-day on Monday, August 17, with the VanEck Vectors Gold Miners ETF (GDX) gaining 3.8%. The component companies as well went on an upward swing. First Majestic Silver (AG), Royal Gold (RGLD), and Gold Fields (GFI) climbed 6.65%, 4.01%, and 5.28%, respectively, on Monday, August 17. The VanEck Vectors Junior Gold Miners ETF (GDXJ) gained 2.63%. RGLD, GFI, and AG together contribute ~9% to the VanEck Vectors Gold Miners ETF (GDX).

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