Gold has moved opposite of the S&P 500 since February. The chart above gives a graphic example of the negative correlation between Gold and one of the other asset classes, stocks. Since February, economic stress in Europe and the U.S. has pulled the S&P 500 down while Gold moved higher.
After the Democrats and the Republicans came to an agreement and prevented a default on our nation’s debt, conventional wisdom says the market would boost as business and investor confidence increased. However, today’s reality is that the stocks ended low in the face of uncertainty over the debt deal. The terms include a $400 billion increase in the debt limit immediately, a $500 billion increase this fall, immediate spending cuts of $900 billion, and the creation of a Congressional commission to identify another $1.2 trillion in spending cuts. Former Under Secretary of Commerce Robert Shapiro described these terms as “a mindless way to run a government.” J.J. Kinahan, managing director with TD Ameritrade, was quoted as saying, “Debt deal or no debt deal, we have some fundamental problems in the economy that we’re not dealing with.”
Monday’s extremely disappointing manufacturing report and last week’s revision of first-quarter growth estimates caused this change in focus. More bad news for the economy was released Tuesday; even though incomes rose in June, consumer spending fell (along with consumer prices). With most economists’ expectations of a credit rating downgrade from the top-notch AAA rating, stock futures were down and investors flocked to safe havens including Gold, which hit new record highs this week before falling victim to the massive selloff affecting all markets.
The stock markets are viewing a recession as likely as prices have continued to decline; stock prices hit their lowest points in almost two years. The concern has driven a number of investors to Treasuries, which is causing inflation concerns with the Swiss Franc and Japanese Yen. Mike Ryan, Chief Investment Strategist at UBS Wealth Management Americas, said Thursday, “The mood right now is gloomy…The burden of proof is for better data that show the economy is not falling into recession. Tomorrow’s payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here.”
The highly anticipated payrolls report was released this morning; it indicated an increase of 117,000 jobs in July. The unemployment rate fell .1% down to 9.1%. These numbers were better than expected which finally brought some relief to Wall Street after two days of tension. Gold gave up early gains amid the news but one analyst says that South Korea’s recent purchase of Gold signals that it’s still not too late to buy Gold. An executive of one company stated that South Korea’s purchase is “significant, as it represents the first purchase of Gold by the East Asian country in over a decade. It would seem South Korea has joined the ranks of those countries that have lost faith in the U.S. dollar … it is no coincidence that many of these central banks are from emerging-market economies. Many of these countries have experienced the grim reality of enduring a currency crisis first-hand.”
WEEKLY SPOT PRICES
Spot Gold prices opened this week at $1,628.00. The high was on Thursday, Aug. 4th at $1,684.90, while the low for the week occurred on Monday, Aug. 1st at $1,608.20. Gold ended the week up $22.30 at $1,650.30. This week, the most popular Gold bullion products were 2011 Gold American Eagles, 1 oz. Pamp Suisse Gold Bars, and 2011 1 oz. Gold Maple Leafs.
Spot Silver prices opened this week at $39.95. Silver reached a high of $42.30 on Thursday, Aug. 4th, while this week’s low for Silver occurred on Friday, Aug. 5th at $37.56. Silver ended the week down $1.93 at $38.02. The most popular Silver products on APMEX.com this week were 2011 Silver American Eagles, 2011 Silver Maple Leafs, 1 oz. Silver Buffalo Rounds and 10 oz. APMEX Silver Bars.
Spot Platinum prices opened this week at $1,781.90 and ended the week down $66.90 at $1,715.00. Popular Platinum products this week included, 1 oz. Platinum Bars, 1/10 oz. Platinum American Eagles, and 1 oz. Platinum American Eagles.
Spot Palladium prices opened this week at $832.30 and ended the week down $90.30 at $742.00. Palladium investors preferred 1 oz. Pamp Suisse Palladium Bars and Palladium Canadian Maple Leafs this week.
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