Gold Retreats From Best Settlement Since 2011 As Investors Take Profits

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Gold futures are retreating from their best levels in about nine years as investors took profits. Gold prices have surged nearly 12% over the last three months amid coronavirus fears, accommodative fiscal and monetary policy, and uncertainty in global financial markets. Traders have sought shelter in the conventional safe-haven asset, but it is unclear if they will continue to maintain a long-term rally.

August gold futures tumbled $23.00, or 1.28%, to $1,777.50 per ounce at 18:47 GMT on Wednesday on the Comex division of the New York Mercantile Exchange. This comes one day after gold notched its best settlement since September 2011. Year-to-date, the precious metal is up nearly 17%.

Silver, the sister commodity to gold, is also trading lower midweek. September silver futures fell $0.427, or 2.29%, to $18.21 per ounce. The white metal just recorded its best quarter ever, skyrocketing more than 30% after falling to around $11. Silver prices also wiped out their 2020 losses, rising close to 2% YTD.

In the short-term, some analysts think this could be the norm in gold markets: A multi-session rally and then traders hit the sell button to take their profits. Does this mean gold will not permanently trade above $1,800 and then test $1,900? The consensus on The Street is that the precious metal will eventually top $2,000 due to the aggressive money-printing by the Federal Reserve and the multi-trillion-dollar spending programs by the US government.

On Wednesday, the US central bank released minutes from the June Federal Open Market Committee (FOMC) meeting. The Fed expects near-zero interest rates to hold steady until the world’s largest economy “had weathered the recent events.” The minutes further revealed that the current stance of monetary policy “remained appropriate,” and that it would need to remain “highly accommodative” for quite some time. The only issue is that officials agreed the Fed needs to improve its guidance for markets.

In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available.

Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook.

A low-rate environment is beneficial for bullion since traditional investment vehicles are not generating a yield for investors.

With concerns over a second COVID-19 wave, investors think the government could unleash even more rescue and stimulus packages to support the economy. Without public interventions, stock markets could return to their March levels and record huge triple-digit losses. For now, health authorities are still trying to contain the first wave in the US, and traders are worried about the resurgence of the highly contagious respiratory illness in more than a dozen states.

A weaker greenback capped gold’s decline as the US Dollar Index dipped 0.22% to 97.18, from an opening of 97.39. A lower buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

In other metal markets, August copper futures edged up $0.0065, or 0.24%, to $2.735 a pound. August platinum futures shed $16.50, or 1.94%, to $834.70 an ounce. August palladium futures plunged $37.60, or 1.91%, to $1,929.30 per ounce.

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