Gold gives back some of the week’s strong gains in early trading
JP Morgan touts gold as a recession hedge and ‘long-duration’ trade
UPDATE: Gold’s sudden spike to the downside coincided with the release of today’s jobs report showing both strong gains in employment and a notable increase in hourly wages. The unexpectedly strong report raises concerns that the Fed will be forced to expend its tight monetary policy to keep a lid on inflation. As reported below, profit-taking is also playing a role in this morning’s downside.
(USAGOLD –5/5/2023) – Gold succumbed to profit-taking this morning, giving back some of the solid gains for the week. It is down $13 at $2038.50. Silver is down 22¢ at $25.90. On the week, gold is up 2.5%, and silver is up 3.6%. In a client advisory reviewed at Bloomberg this morning, JPMorgan strategists touted gold as a hedge against a recession – a “long-duration” trade with limited downside if the recession is mild but “plenty of upside” if it is deep.
“The US banking crisis,” says JPM, “has increased the demand for gold as a proxy for lower real rates as well as a hedge against a catastrophic scenario.” Institutional investors, it adds, have flocked into the metal. Similarly, in a separate analysis posted at CME Group, TJM Institutional Services finds that gold has rallied 28% and outperformed the S&P 500 by 37% on average during recessions. Importantly, it adds that gold reacts more to “the Fed and federal government’s response to the recession than the recession itself.”
Gold during recessions
(1971 to present; grey bars = recessions)
Chart courtesy of MacroTrends.net
