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Barrick-Randgold deal breathes new life into gold

Despite having a rough summer, with a number of factors pushing gold below $1,200 an ounce (the high dollar, US economic growth, interest rate hikes, booming stock markets), the precious metal appears to be back in favor, with December gold futures closing last Tuesday’s trading at $1,207 an ounce – a two-week high.

In 10 minutes, Bloomberg reported, December gold contracts equal to 1.57 million ounces changed hands on the Comex in New York – almost 12 times the 100-day average volume at that time of day. The catalyst was fresh safe-haven demand owing to political uncertainty in Italy. A government official reportedly said Italy would be better off with its own currency, adding to doubts about the country’s fiscal situation. The EU has to pass Italy’s budget and many think it won’t cut the mustard.

An IMF Financial Statistics Report reveals that Egypt recently bought gold for the first time since 1978, and that India, Indonesia, Thailand and the Philippines have re-entered the gold market after years-long absences. And Bloomberg reported that the Bank of Mongolia has purchased 12.2 tonnes of gold so far this year.

The World Gold Council believes that many emerging market central banks are turning their attention to gold after years of exposure to the U.S. dollar, and as a natural currency hedge against other reserve currencies. The report maintains that gold is a strategic asset that can help central banks meet tactical objectives, as the international monetary system gradually shifts away from a U.S. dollar-dominated system towards a multipolar one.

While gold slipped under $1,200 on Wednesday, last trading at $1,198.64 at time of writing, it’s a lot better than the major down-leg gold suffered at the end of September, when it dropped to $1,182.30 on September 28. That day gold was at its lowest in six weeks due to US dollar strength, stock market gains and the US Commerce Department reporting that GDP increased at an annual 4.2%. Good economic news and a rising dollar are generally bad news for gold, which serves as a flight to safety in times of economic uncertainty.

The US dollar has climbed steadily since April, mostly due to continued buying of US Treasuries – not because other countries are especially confident of the US economy right now (in fact the opposite is true, with the Trump Administration engaged in a protracted trade war with China) – but because there are no other alternatives.

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MARKET SUMMARY

INDICES

Name Last Change
DOW 25340.00 100.00%
S&P 500 2767.13 1.40%
NASDAQ 7496.89 2.24%
TSX 15414.29 0.63%
TSX-V 698.60 0.00%

Resource Commodities

Name Last Change
Gold 1225.00 0.50%
Silver 14.69 0.54%
Copper 2.79 0.000
Platinum 847.50 0.53%
Oil 71.34 0.52%
Natural Gas 3.16 1.93%
Uranium 27.58 0.00%
Zinc 1.21 0.00%

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