Gold hit $1,944 per ounce earlier on Monday, beating its previous record of $1,921 set in 2011. It has now gained about 27% so far this year. Silver also got a boost, climbing more than 6% to reach $24.21 an ounce, eclipsing Thursday’s seven-year high.
“Gold is the clear beneficiary of safe haven demand,” Stephen Innes, chief global markets strategist at AxiCorp, said in a research note. And the record run may not be over yet. Analysts at UBS expect gold to reach $2,000 before the end of the year, driven higher by low US interest rates, a weaker dollar and tension between the United States and China.
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Gold price hits record high on new fears for the economy
An economy (from Greek οίκος – “household” and νέμoμαι – “manage”) is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. Understood in its broadest sense, ‘The economy is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources’. A given economy is the result of a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure and legal systems, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of human practices and transactions. It does not stand alone.
Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain.
Economic activity is spurred by production which uses natural resources, labor and capital. It has changed over time due to technology (automation, accelerator of process, reduction of cost functions), innovation (new products, services, processes, expanding markets, diversification of markets, niche markets, increases revenue functions) such as, that which produces intellectual property and changes in industrial relations (most notably child labor being replaced in some parts of the world with universal access to education).
A market-based economy is one where goods and services are produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network, such as a unit of currency. A command-based economy is one where political agents directly control what is produced and how it is sold and distributed. A green economy is low-carbon, resource efficient and socially inclusive. In a green economy, growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. A gig economy is one in which short-term jobs are assigned or chosen via online platforms. New economy is a term referred to the whole emerging ecosystem where new standards and practices were introduced, usually as a result of technological innovations.
The main driver behind gold’s rally has been falling returns on US government bonds, which reflect the likelihood that the Federal Reserve will have to keep interest rates lower for a prolonged period of time to support the economic recovery, according to Hussein Sayed, chief market strategist at FXTM. That has also served to weaken the US dollar, which is trading at a 22-month low of 0.85 euros and a 4-month low against the Japanese yen.
“That’s partly driven by a sense that the US is having a harder time controlling the virus than others, which will see the US economy under-perform,” said Kit Juckes, chief strategist at Societe Generale.
Gold price hits record high on new fears for the economy
There is mounting evidence that America’s fragile economic recovery is already stalling, as the number of coronavirus infections and deaths spike. Jobless claims are rising again for the first time in months and there are worries that the expiration of Washington’s $600 boost to unemployment benefits, set to end on Friday, will deal another blow to consumer spending.
Ex-Obama adviser warns of a potential repeat of the financial crisis
Austan Goolsbee, who chaired President Barack Obama’s Council of Economic Advisers in the aftermath of the 2008 financial crisis, told CNN Business that the United States could be in for another financial meltdown if the pandemic isn’t quickly brought under control.
“Whoever is coming in there in January 2021 might be facing worse conditions than in 2009, as hard as that is to believe,” Goolsbee said, referring to the upcoming presidential election.
Worrying signs in Europe, too
Elsewhere, sentiment remains fragile following a spike in coronavirus cases in Spain, which prompted the UK government to impose a 14-day quarantine on all people returning from the country. Investors fear that the restrictions could spread, delaying the economic recovery.
The spike has already impacted flight bookings, according to Ryanair (RYAAY) CEO Michael O’Leary. Europe’s biggest low cost airline now expects to carry 60% fewer passengers over the 12 months to April 2021, compared with the previous year. “That will be entirely contingent on there being no second wave of Covid-19 in the [fall] and winter,” O’Leary said on Monday.
In a new report published Monday, EY economists forecast that UK GDP will contract 11.5% in 2020, compared with the 8% drop they were expecting in June. A second coronavirus wave and the failure of post-Brexit trade talks with the EU would make matters even worse.
“The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected,” noted Howard Archer, EY’s chief economic adviser.
— Matt Egan and Julia Horowitz contributed reporting.