Gold Keeps Breaking Out!

MARKETS

Gold gained over $25 per oz to reach its highest since September 2011 and silver topped $20 per oz for a 4-year peak. Oil joined in on the commodity rally with Brent and WTI crude prices pushing up to the strongest since March.

EUR/USD reached a 6-month peak over 1.15 in a broad euro-rally brought on by the agreement on an EU Recovery fund. The euro strength meant the dollar fell against most major FX pairs, including the Aussie dollar (AUD/USD) which broke above the key 0.70 handle.

Germany’s DAX index erased its 2020 losses after EU leaders crafted a €750 billion rescue package and a 7-year budget worth over a €1 trillion. The FTSE 100 lagged given that the UK will no longer be in the European Union to benefit from and/or pay for the deal at the end of this year. 

Good news on various vaccine trials bolstered overall market sentiment including shares across Asia. The resumption of talks on a new US stimulus package helped lift cyclical shares on Wall Street, while tech and momentum stocks pulled back.

Guru Wisdom

“Men, it has been well said, think in herds.  It will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay

Precious metals

The monster rally in gold and silver continued into Tuesday. Investors see the huge levels of debt being taken on by governments and are increasingly willing to pay up for assets that hold their value in times of monetary largesse. 

The rally in gold has been remarkably steady (see chart below) with new rallies typically followed by periods of consolidation before the next rally. We are watching price action around the $1850 big figure for any signs of trend reversal.

AUDUSD > 0.70

RBA minutes and the talk given by RBA Governor Lowe didn’t upset the apple cart by any measure but were just hawkish enough in the context of rising coronavirus cases in Melbourne. With a brighter mood across markets to help, AUD/USD broke out above 0.70 and from its 6-week consolidation.

DAX Positive Again

EU leaders agreed (at last!) on a €750 billion rescue package. The new fund and budget agreement add a well-needed fiscal boost, especially to Southern / most indebted / most virus-infected nations. Still, as Europe’s biggest economy – Germany has the most to gain from preventing the European economy going into in freefall without government support and as such the DAX index was top riser on the continent, erasing its 2020 losses.