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 Gold retreated back to the $1300 zone today, as markets seemed to
take a breather from recent Brexit inspired moves. The dollar slipped as
well, as the two markets continue to be correlated.
As for that correlation between the dollar and gold, Grant Williams says the
following:
“It doesn’t happen often, but when it does it’s a sure
sign people are nervous — saw it in 2008, saw it in the 30s. It’s a sign we
are at a point of critical stress.” — Grant Williams
When investors are nervous,
they frequently turn to gold. The corrective tone today may be attributable
to the BoE's injection of £3.1 bln of liquidity into the banking system as a
post-Brexit stabilizing measure. It was the last scheduled injection,
although the BoE is widely expected to offer further policy accommodations
when they next meet on July 14. A repo rate cut from 0.50% to the zero-bound
is anticipated, with the potential for further QE as well.
S&P cut the rating on UK sovereign debt by two-notches late yesterday,
from AAA to AA, with a negative outlook. Interestingly, the yield on 10-year
Gilts was at a record low of 0.93%. The yield is trading a whopping 3 bps
higher today at 0.96%. If anyone really thinks less-than 1% is adequate
compensation for the present risk situation in the UK, I'd be surprised.
There once was a time when a debt downgrades resulted in higher rates, but
when there is the expectation that the central bank will just come in and
provide artificial demand for that debt, common sense goes right out the
window. This is just the latest example of just how broken the markets are.
Wise investors are taking a portion of their wealth and moving it outside
this broken and oft nonsensical system. The best way to do that is a purchase
of physical gold.
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