Gold Bars, Soft Landings, and More!
Editor’s Note: Happy Wednesday, dear reader!
Let’s get to it!
Gold Bars Cross $1M Mark for First Time
Gold has hit a new milestone: On Friday, the price of an average bar made of the precious metal became worth $1 million for the first time ever.
On Friday, the spot price for gold reached more than $2,500 per troy ounce. The typical gold bar weighs 400 troy ounces.
Since the start of the year, spot gold prices have gained more than 20%. Yesterday, the spot price rose to a record $2,531.60 per ounce.
There are likely several reasons for this rally — chief among them the likelihood that the Federal Reserve will trim its benchmark interest rate when the central bank meets in September.
Traditionally, gold and interest rates have had a negative correlation. That means, when interest rates go down, gold prices tend to go higher — and vice versa.
Lower rates make the precious metal a more appealing investment than bonds and even stocks.
Gold is also viewed by many investors as a safe haven against volatile economic and geopolitical times.
The ongoing wars in Ukraine and the Middle East have been significant factors in the rise of gold prices in recent years.
“The historic rise in the price of gold above $2,500 per ounce reflects growing global economic uncertainty and investors’ continued search for safety,” XS analyst Antonio Ernesto Di Giacomo recently noted.
“With economic, geopolitical, and monetary factors driving this surge, gold is solidifying its position as a safe haven in times of volatility.”
Currently, the Fed futures market is pricing in a strong likelihood that the Federal Reserve will slash interest rates by 25 basis points, to between 5.00% and 5.25%. This move is likely to happen at the next Federal Open Market Committee (FOMC) meeting in September.
However, this week, the Fed is having its annual powwow at Jackson Hole, Wyoming. Fed Head Jerome Powell is expected to deliver a much-anticipated speech that could give the markets more indication of what lies ahead regarding rates and Fed policies.
As a result, the price of gold could head even higher by the end of the week.
Goldman Sees Slimmer Chance of Recession
Goldman Sachs (NYSE: GS) has lowered its probability forecast for a U.S. recession thanks to new data about the labor market.
Back at the start of August, the Wall Street titan had raised its probability forecast from 15% to 25% after the Labor Department reported smaller-than-expected payroll growth for July.
In July, only 114,000 nonfarm payrolls were added — significantly lower than June’s downwardly revised total of 179,000 and below analyst estimates of 185,000.
After the jobs report was released, the stock market hit the skids.
The report also brought the “Sahm rule” into the headlines. This rule holds that if the three-month moving average of the unemployment rate is at least half a percentage point higher than the 12-month low, a recession is underway.
Historically, this rule has been a reliable recession indicator.
However, new data released in August has led Goldman to determine that there is “no sign of a recession.” As a result, the probability forecast has been lowered to 20%.
What is this magical new data that erases recession worries?
Well, for one thing, retail sales rose by far more than expected in July — showing 1% growth, rather than just the expected 0.3% uptick.
In addition, the initial jobless claims for the week that ended August 10 came in lower than expected.
The stock market rallied last week on the heels of the better-than-expected data.
“Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time,” a note from Goldman economists said over the weekend.
The note also cited Canada, which has seen a significant uptick in its unemployment rate without triggering a recession in the current cycle.
In addition, the bank’s economist noted that if the August jobs report — due out on September 6 — shows a return to health, the bank will likely reduce its recession probability forecast back to 15%.
Coming In for a Soft Landing?
After a July report that showed rising unemployment and stalling job growth, the stock market slipped into crisis mode, fearing a recession was imminent.
However, more recent data has shown a much more “Fed-friendly” picture, with indications that the labor market is cooling but not in danger of sending the economy on a downward spiral.
As Jerome Powell, head of the Federal Reserve, put it in July, “In the labor market, supply and demand conditions have come into better balance. The unemployment rate has moved up but remains low… nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed.
“Overall, a broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic — strong, but not overheated.”
In other words, it looks like we may be ready for the much-discussed “soft landing.”
Take a look:
You will find more infographics at Statista
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