- Gold moves back above $4,400 an ounce after retreat in first half of the year
- Mining shares start to shine again too
- Metal may be anticipating a major shift in US monetary policy owing to fiscal pressures
“Endeavour Mining and Fresnillo both sit near the top of the FTSE 100 daily leaderboard as gold goes back above $4,400 an ounce, and they are not the only diggers on the rise. The leading tracker funds that follow baskets of gold mining shares are also starting to shine once more,” says AJ Bell investment director Russ Mould.
“Following the sharp pullback in gold and silver in the first half of the year, this stealthy move is easy to miss but it is a trend to note, amid ongoing worries about Western government debts and rising bond yields, even if markets still seem more interested in all matters related to artificial intelligence than anything else.
“Gold in particular seems to be kicking on again.
Source: LSEG Refinitiv data
“Two leading exchange-traded funds (ETFs) are paying attention too, as they follow the share prices of a basket of established and junior gold producers and explorers. The VanEck Vectors Gold Miners ETF is up by 22% this month, and the VanEck Vectors Junior Gold Miners ETF is up by 24%.
Source: LSEG Refinitiv data
“It may not be a coincidence that the gold price is getting a wiggle on after America’s attempts to prop up the Japanese yen, attempts which are not proving entirely successful judging by how Tokyo’s currency is quickly ceding some of its initial gains.
“America’s involvement is unlikely to be for altruistic reasons, as Treasury Secretary Scott Bessent will be more worried about the prospect of Japan selling some of its huge US government bond holdings than the debt and inflation woes of Prime Minister Sanae Takaichi.
“Bessent will be watching the seemingly inexorable rise in benchmark US 10-year Treasury yields to levels barely seen in two decades. This upward march reflects galloping increases in the US sovereign debt pile, which will only accelerate if the war in the Middle East drags on and yields rise further, as they will add over time to an interest bill that already gobbles up a fifth of Washington’s tax take.
“President Trump is asking for an increase in annual defence spending to $1.5 trillion, from around $900 billion, but the Budget is trapped between the summer recess and haggling on Capitol Hill over both the sums involved and the controversial SAVE Act. If Congress does not act quickly upon its return in September, nothing may happen at all until after the mid-term elections on 3 November – a prospect that is likely to have bond vigilantes on a state of high alert.
Source: LSEG Refinitiv data
“Treasury yields may also be looking toward the US Federal Reserve and its new chair, Kevin Warsh. He has declined to give forward guidance as to how policy may develop, but markets are pricing in one or even two one-quarter point interest rate increases by this time next year.
“In theory, rising bond yields, and better returns on cash, should be bad news for gold, as it increases the opportunity cost to investors of holding the precious metal.
“However, gold may be one step ahead. Markets’ conviction levels in Fed rate rises over the next year or so look to be ebbing – there is barely a 50% per cent chance put on a hike to 4.00% compared to a 70% chance just a month ago.
“It just could be that the combination of weaker jobs numbers, a presidential preference for looser monetary policy and America’s ever-increasing public debt may decrease the chances of a Fed hike.
“Treasury Secretary Bessent’s currency manoeuvrings suggest there is increased concern about Treasury yields and maybe gold, silver, and their producers are moving ahead of a more dramatic policy move. This could come in the form of a shift to holding interest rates where they are, some form of yield curve control (YCC), or even Quantitative Easing (QE).
“The Fed’s balance sheet has stopped shrinking, even if Mr Warsh is a known critic of this and repeatedly states his desire to reduce the Fed’s bond holdings.
Source: LSEG Refinitiv data, FRED - St. Louis Federal Reserve database
“If this thesis is wrong, as Mr Warsh sticks to his guns and Mr Bessent manages to halt the march of Treasury yields by other means, then gold could once more look exposed on the downside. But someone, somewhere seems keen to find a potential hedge against American and Westen fiscal incontinence.
Source: LSEG Refinitiv data, FRED - St. Louis Federal Reserve database
“Any return to unorthodox policy tools could also show up in money supply, where growth in M2 in the US is gradually accelerating. This would be meat and drink to gold bugs, judging by how increases in money supply, and thus effective debasement of the currency, have stoked two major bull runs in gold this century already.”
Source: LSEG Refinitiv data, FRED - St. Louis Federal Reserve database
