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Gold settles at highest level ever

Ross Norman, CEO of Metals Daily, joins Yahoo Finance's Akiko Fujita to discuss gold prices hitting a new record Monday, along with his outlook on silver.

Video Transcript

AKIKO FUJITA: Gold prices hitting a fresh record yet again today. Futures contracts for August surged $40, or 2%. So the question is how much higher can the metal go?

Let's bring in Ross Norman. He is the CEO of Metals Daily. Ross, we have seen a huge surge on this front. Just walk us through the moves here. Is this a hedge against the dollar? Is it an inflation play? I mean, why have we seen gold run up so much so soon?

ROSS NORMAN: Well, all of the above, really. I mean, it hasn't really moved in the recent past. Gold's been in a bull run for over a year. In fact, last year it saw a 19% gain.

And if you had to pick out the single item I think that you would look at to explain the move, it was the fall in US Treasurys. 10-year Treasury falling down to, well, today, below 60 basis points, nominally. In real terms, you're losing money holding these wonderful long-term bonds.

And I think this is the thing that took gold initially through that $1,360 level a year ago, a seven-year high to the current levels. Now that move has been propelled higher, if you like, by the second-order effects of the virus we've had. I'm talking here about the increase in the money supply, the increase in debt, the geopolitical uncertainty that's going on around us, and perhaps most importantly, all these things pointing to short-term deflation but longer-term inflation. All the planets are aligning for gold, and hence a fresh all-time high.

AKIKO FUJITA: So what does this say-- this particular trade say about where the sentiment is on the broader economy? I mean, you talk about this being a safe-haven play, and it seems like it has become more than that over the last several months. But what is the sentiment that we can draw from the moves we've seen in this particular metal?

ROSS NORMAN: Yeah, the moves in gold have been slow and steady hitherto until recently, and what we've seen is silver, which has been lagging and holding back, has accelerated. In fact, silver is up some, like, 38% in just the last few weeks.

Now although silver rather patiently follows gold around, in this particular move, silver has rallied ahead of gold. In fact, just today gold was up 2%, but silver was up 7 and 1/2% in one day. So silver is taking up the running, and in the way, it's authenticating gold's rally. If there's too much distance between the two metals, it calls into question gold's rally. So silver-- gold needs silver to perform.

And perversely, even Bitcoin has performed. So on a day that we've seen strength in gold, we've seen strength in silver. And, of course, Bitcoin has gone through the $10,000 level. So there's a sense that these alternative safe-haven assets have moved forward together across these very important boundaries.

AKIKO FUJITA: How sustainable are these levels?

ROSS NORMAN: Difficult question, really. I would argue that $200 ago in gold very so, but the move in gold has accelerated. It's very ungold like. It's normally rather sober and considered in its price action.

Silver is a good indicator to the thinking in gold, and what I mean by that is that if you look at the ETF buying, which is the primary buying of gold-- gold on the stock exchange, a securitized form of gold. In the year to date, institutional investors have bought 880 tons. That's $230 billion worth of gold in the ETF.

Now in the first quarter, those were primarily European institutions. In the second quarter-- and this is important-- it's been mainly North American institutions that picked up the running in the gold ETF.

Now, silver is primarily a North America phenomena broadly speaking. Go with me. What I mean by that is we don't know silver so well here in Europe. For example, the physical metal attracts the A team. We have to pay a $0.20 tax on silver but not on gold. So it's that rallying of North America interest in gold in the second quarter coupled with interest in silver that has taken them all higher.

What worries me is that gold has slightly gone parabolic. In other words, it's now spiking, which suggests it lends less credibility to the move just now. The move in the two has been good and strong, but it's moving so fast that I would question whether it can be sustained unless-- and this is the important thing-- we have a period of consolidation at these levels. We need to study up a bit.

AKIKO FUJITA: You know, there's been a lot of references made to what we saw post GFC, and I'm curious what you think is different about this gold rush. I mean, is there an added vulnerability given the nature of the pandemic and then the drop in demand if you look at, for example, physical metal?

ROSS NORMAN: Yeah, I mean, there's no question that things are very different now. Back then in-- you know, with the Global Financial Crisis, gold was very much an Asian-centric trade, China and India accounting for more than 2/3 of demand. Those markets have disappeared to almost nothing, and today it's a very, very Western-centric trade.

Interestingly enough, Asian demand is now picking up. The LOCO London discount was traded in India and in China until recently. It's now moving into a small premium, suggesting that local demand in these regions is finally picking up.

They're very price sensitive in Asia, and you'll understand that they take a little bit of time to get used to a new, bigger figure on the gold price. So what we're seeing now is gold playing catch up in Asia, but still Western investors-- primarily institutional investors-- predominate. The retail investor, the demand there has been relatively lackluster, surprisingly.

AKIKO FUJITA: And, Ross, you alluded to some concerns about how sustainable this level is, but you've also said that you expect to hit an all-time high about $2,080. I mean, we're just under it right now, but are you expecting a bit more of a run up before things maybe start to stabilize?

ROSS NORMAN: You know, the best thing for gold-- you know, we've done 19% last year, 28% in six months. Gold does 20-something-percent runs when it gets the bit between its teeth but not in six months. So the healthiest thing for a sustainable bull run-- and a bull run in gold is typically 8 to 10 years, and we're only in the second year. The sensible thing would go for gold to stabilize around these levels to consolidate, to bring down the RSIs to show that gold is not overbought.

I still believe that gold will hit $2,080 during the course of this year and even perhaps higher. I just think it's the manner with which does it-- it does it that tells you how sustainable that is.

AKIKO FUJITA: Yeah, really fascinating to see how this is all traded. Ross, would love to have you back on the show as we check in with those levels throughout the next few months. Ross Norman, CEO of Metals Daily, thanks so much for your time today.