Gold Rallies Amidst Turmoil

Author: Jon Clarke - Bullion & Economics Editor

Published: 1 Sep 2020

Last Updated: 2 Feb 2023

Contents: Police Shooting Leads to Further Protests

Contents: Hurricane Laura

Contents: “New” Central Bank Policies

Contents: Summary

Synopsis

While the beginning of August saw record highs for gold, the same could not be said for the following weeks. Despite a number of dips, social unrest and a category 4 hurricane thrown in for good measure, the final days of August saw gold regain some of its previous strength.

Police Shooting Leads to Further Protests

The continuing demonstrations against police violence took a deadlier turn when 17-year old Kyle Rittenhouse opened fire on a number of protestors in Kenosha, Wisconsin; allegedly killing 2 and wounding a third. The most recent round of protests, ignited by the shooting of 29-year old, Jacob Blake, who was shot a number of times in the back by police, following reports of a domestic disturbance. Videos of both incidents have been seen on social media and have led to responses from President Trump in which he defends Rittenhouse.

Hurricane Laura

As Hurricane Laura made its way from Louisiana to Arkansas before heading east and finally working its way up to Nova Scotia and Newfoundland, the damage left in its wake becomes apparent. Residents of Louisiana are expected to face weeks without power and water. Most recent death counts cite around 16, a number of which are attributed to carbon monoxide poisoning caused by unsafe generators. A further two dozen were killed in Haiti and the Dominican Republic as the Hurricane travelled up the Gulf Coast to the US mainland. A statement from the White House said:

President Trump is committed to deploying the full resources of the Federal Government to rescue those in distress, support those in the region affected, and restore disruptions to our communities and infrastructure.

“New” Central Bank Policies

Federal Reserve Chairman, Jerome Powell, announced a major policy shift at the virtual Jackson Hole Symposium, which would allow inflation to increase higher than its 2% goal, which implies that the Fed will be less inclined to increase interest rates as unemployment falls. The subsequent dollar sell-off ignited by Powell’s “looser for longer” approach sees gold being a more secure bet for the medium to long term.

Bank of England Governor, Andrew Bailey, also weighed in supporting the £200 billion bond-buying program that began earlier this year, and that “going big and fast” with quantitative easing is particularly effective.

Summary

The social disruption, Fed policy and the aftermath of Hurricane Laura will add more political pressure in the run-up to November’s US election. Regardless of the outcome, there will undoubtedly be a quick response in the gold and bond markets.