Gold prices closed higher on Friday after erasing earlier losses as the relentless coronavirus spread globally with a record jump in COVID-19 infections in the United States marring risk appetite and setting the precious metal on track for its third straight weekly rise.
Stock market investors are getting jittery about holding long positions in the hopes of a swift economic recovery due to the current rise in coronavirus cases. In response to these fears, investors are moving money into bonds, the dollar and gold.
On Friday, August Comex gold settled at $1780.30, up $9.70 or +0.55%.
The fear of a second wave of COVID-19 infections is not driving up gold per se. In my opinion, the rise in infections is driving up the chances of additional fiscal and monetary policy stimulus, and this is bullish for gold.
Easy monetary policies and a string of stimulus measures by major central banks to stem the virus impact have sparked concerns of inflation, driving bullion prices about 16.5% higher this year.
Earlier in the week, gold futures surged to a new contract high, but price retreated slightly as the rival safe-haven U.S. Dollar took some shine off the precious metal amid rising coronavirus cases.
Weak US Economic Data May Have Triggered Friday’s Surge
U.S. consumer spending rebounded by the most on record in May, but the gains are not likely to be sustainable, with income dropping and expected to decline further as millions lose their unemployment checks starting next month.
The surge in spending reported by the Commerce Department on Friday is also under threat from a jump in coronavirus cases in many parts of the country, including densely populated California, Texas and Florida. The rising COVID-19 infections chipped at consumer sentiment in the second half of June. Confidence in government economic policies dropped in June to the lowest level since President Donald Trump entered the White House.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2 last month. That was the largest increase since the government started tracking the series in 1959. Consumer spending tumbled by a historic 12.6% in April. Traders were looking for a 9.0% gain in May.
Personal income dropped 4.2%, the most since January 2013, after surging by a record 10.8% in April when the government handed out one-time $1,200 checks to millions of people and boosted unemployment benefits to cushion against the COVID-19 hardship. The payments are part of a historic fiscal package worth nearly $3 trillion.
In a separate survey on Friday, the University of Michigan said its consumer sentiment index dipped to a reading of 78.1 in the middle of June.
Finally, inflation remained weak in May, with food prices moderating and the cost of energy goods and services declining for a fifth straight month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components edged up 0.1% after falling 0.4% in April.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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