Gold Shows Resilience In The Face Of Strong Economic Growth

May 7, 2019

New York (May 7)  The US figures for economic growth in the first quarter have arrived and were a reason to party. The analysts had predicted a growth of 2.5% but the actual number we got was whopping 3.2%. CNBC`s Rick Santelli also noted that it was the first time since 2015 that first-quarter growth was higher than 3%.


On Wednesday, Fed chairman Jerome Powell announced that the federal reserve is keeping interest unchanged. And as expected, this had an impact on stock prices and gold. Investors wanted interest rates to be lowered, resulting in lower prices. Stocks dropped and precious metals showed a sharp decrease of almost 1%. The strength of the dollar showing why it is the world reserve currency.

Dollar Inflation

In the meantime, the Fed is trying everything but a rate cut to boost inflation. The Fed's mission is price stability and that stability is described as 2% inflation. And with low official inflation rates, the consensus is and push for an increase. After the major correction of the stock market at the end of last year, the policy of changing from automatic to pilot interest rate increases were made in record time, to openly talk about a new round of Quantitative Easing. 46% of the market now predicts that interest rates will be lowered at least once in 2019. An analysis of TD Securities expects a new round of QE from 2020 in the form of buying up 300 billion of government bonds.

First fall in real estate in 7 years

The promise of QE, low-interest rates and the Fed's decision could not prevent the price of US homes from falling for the first time in 7 years. A study by RedFin shows that the price of homes has fallen slightly year after year. Something that last happened in February 2012.

Prices fell in California were in San Jose houses changed ownership for 13% less than in the same month a year earlier. But also in popular San Francisco, the average price fell by 1%. All figures added together, the average price of a home in the US fell by 0.1%. And although that decline is minimal, it remains an important indicator of both confidence in the economy and confidence in the real estate market.

Gold as an insurance policy

Despite the fall in the price in dollars, gold shows that it also behaves in the current market as it has always behaved. With an increasingly complex market, with the thousands of financial products available, gold still offers the protection that has made it an attractive investment for thousands of years. This is apparent in purchases by central banks around the world. In the first quarter of 2019, they bought 68% more gold than in the same period in 2018. That may be surprising because total demand in 2018 was the highest since Nixon stopped coverability of the dollar with gold in 1971. Just like last year, the largest buyers of gold are again Russia, Turkey and China who are trying to reduce their dependence on the dollar with the purchase of gold.

Records in 72 currencies

It is clear that gold in dollars and euros is still far below the all-time high. Perhaps less visible are the all-time highs or the few percentage points that gold is removed from all-time highs, in 72 currencies. This list shows the currency in which gold turned out to be an excellent investment in recent years. And with the hunt for inflation and the threat of a new round of QE in the US, the mighty dollar might also be on this list in the long term.

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